<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLORIDA COAST PAPER COMPANY, L.L.C.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 2631 59-3379704
<S> <C> <C>
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
600 U.S. HIGHWAY 98,
PORT ST. JOE,
FLORIDA 32456
(904) 227-1171
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SEE TABLE OF ADDITIONAL REGISTRANT
------------------------
MICHAEL S. NELSON
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective and all other
conditions to the exchange offer (the "Exchange Offer") pursuant to the
registration rights agreement (the "Registration Rights Agreement") described in
the enclosed Prospectus have been satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AMOUNT OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
12 3/4% Series B First Mortgage
Notes Due 2003.................. $165,000,000 100%(1) $165,000,000(1) $ 56,896.55
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADDITIONAL REGISTRANT
<TABLE>
<CAPTION>
PRIMARY
STANDARD I.R.S. ADDRESS, INCLUDING ZIP CODE
INDUSTRIAL EMPLOYER AND TELEPHONE NUMBER INCLUDING
JURISDICTION OF CLASSIFICATION IDENTIFICATION AREA CODE, OF PRINCIPAL
NAME OF CORPORATION INCORPORATION CODE NUMBER NUMBER EXECUTIVE OFFICER
- ----------------------------------- --------------- --------------- -------------- ------------------------------
<S> <C> <C> <C> <C>
Florida Coast Paper Finance
Corp.............................. DE 2631 59-3379707 600 U.S. Highway 98
Port St. Joe, Florida, 32456
(904) 227-1171
</TABLE>
<PAGE>
FLORIDA COAST PAPER COMPANY, L.L.C.
FLORIDA COAST PAPER FINANCE CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404(A)
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND
HEADING PROSPECTUS CAPTION
------------------------------------ ---------------------------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus......................... Forepart of Registration Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Table of Contents; Available Information; Inside Front and Outside
Back Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information........................ Prospectus Summary; Risk Factors; The Exchange Offer; The
Acquisition; Selected Historical Financial Data; Unaudited Pro Forma
Financial Data
4. Terms of the Transaction............ Prospectus Summary; The Exchange Offer; Description of New Notes
5. Pro Forma Financial Information..... Prospectus Summary; Selected Historical Financial Data; Unaudited Pro
Forma Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations
6. Material Contacts with Company Being
Acquired........................... Prospectus Summary; Risk Factors; The Acquisition; Business
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......... Not Applicable
8. Interests of Named Experts and
Counsel............................ Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Not Applicable
10. Information With Respect to S-3
Registrants........................ Not Applicable
11. Incorporation of Certain Information
by Reference....................... Not Applicable
12. Information with Respect to S-2 or
S-3 Registrants.................... Not Applicable
13. Incorporation of Certain Information
by Reference....................... Not Applicable
14. Information with Respect to
Registrants Other than S-2 or S-3
Registrants........................ Outside Front Cover Page of Prospectus; Available Information;
Prospectus Summary; Selected Historical Financial Data; Unaudited
Pro Forma Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Business; Index to
Financial Statements
15. Information with Respect to S-3
Companies.......................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies...................... Not Applicable
17. Information with Respect to
Companies Other than S-2 or S-3
Companies.......................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be
Solicited.......................... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer.............................. Management; Security Ownership
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 12, 1996
FLORIDA COAST PAPER COMPANY, L.L.C.
FLORIDA COAST PAPER FINANCE CORP.
OFFER TO EXCHANGE ITS 12 3/4% SERIES B FIRST MORTGAGE NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
ANY AND ALL OF ITS OUTSTANDING
12 3/4% SERIES A FIRST MORTGAGE NOTES DUE 2003
($165,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1996, AS SUCH DATE MAY BE EXTENDED (THE "EXPIRATION
DATE").
Florida Coast Paper Company, L.L.C. (the "Company") and Florida Coast Paper
Finance Corp. ("Finance Corp." and, together with the Company, the "Issuers")
hereby offer (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange an aggregate of up to
$165,000,000 principal amount of 12 3/4% Series B First Mortgage Notes due 2003
(the "New Notes") for an identical face amount of the outstanding 12 3/4% Series
A First Mortgage Notes due 2003 (the "Old Notes" and, with the New Notes, the
"Notes"). The terms of the New Notes are identical in all material respects to
the terms of the Old Notes except that the registration and other rights
relating to the exchange of Old Notes for New Notes and the restrictions on
transfer set forth on the Old Notes will not appear on the New Notes. See "The
Exchange Offer." The New Notes are being offered hereunder in order to satisfy
certain obligations of the Issuers under a Registration Rights Agreement dated
as of May 30, 1996 (the "Registration Rights Agreement") among the Issuers and
Bear, Stearns & Co. Inc. (the "Initial Purchaser"). Based on an interpretation
by the staff of the Securities and Exchange Commission (the "Commission") set
forth in no-action letters issued to third parties unrelated to the Company, New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold, and otherwise transferred by a holder thereof (other
than a holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act of 1933, as amended (the "Securities Act")),
without compliance with the registration and the prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement with any
person to participate in or is engaged in or is planning to be engaged in the
distribution of such New Notes.
The New Notes will bear interest at the rate of 12 3/4% per annum, payable
semi-annually in arrears on June 1 and December 1 of each year, commencing on
December 1, 1996. The Issuers will not be required to make any mandatory
redemption or sinking fund payments with respect to the New Notes prior to
maturity. The New Notes will be redeemable, at the option of the Issuers, in
whole or in part, at any time on or after June 1, 2000 at the redemption prices
set forth herein. In addition, at the option of the Issuers, up to one-third of
the aggregate principal amount of New Notes may be redeemed prior to June 1,
1999 at the redemption price set forth herein with the net proceeds of a public
offering of Capital Stock (as defined herein) (other than Disqualified Stock (as
defined herein)) of the Company; PROVIDED that at least two-thirds of the
aggregate principal amount of New Notes originally issued under the Indenture
remain outstanding following such redemption. In addition, upon the occurrence
of a Change of Control (as defined herein) prior to June 1, 2000, the Issuers,
at their option, may redeem all, but not less than all, of the outstanding New
Notes at a redemption price equal to 100% of the principal amount thereof plus
the applicable Make-Whole Premium (as defined herein). Upon the occurrence of a
Change of Control (as defined herein) at any time, the Issuers will be required
to make an offer to repurchase from each holder of the Notes ("Holder") at a
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. There can be no assurance that
the Issuers will have the financial resources necessary to repurchase the New
Notes upon a Change of Control. The New Notes will be senior secured obligations
of the Issuers, will rank senior in right of payment to all subordinated
indebtedness of the Issuers and will rank PARI PASSU in right of payment with
all other existing and future senior indebtedness of the Issuers. As of March
31, 1996, after giving pro forma effect to the Acquisition and the financings
therefor, the Issuers would have had outstanding indebtedness of $175.0 million,
including the New Notes. The New Notes will be secured by a first mortgage on
all real property and improvements comprising the Mill (as defined herein) and a
first priority security interest in substantially all of the equipment of the
Mill and certain other assets (but excluding, among other things, inventories
and accounts receivable, and the proceeds thereof). See "Description of New
Notes."
Finance Corp. is a subsidiary of the Company that was incorporated in
Delaware for the purpose of serving as a co-issuer of the Notes in order to
facilitate the Offering (as defined herein) of the Old Notes and the Exchange
Offer. Finance Corp. does not have any substantial operations or assets and does
not have any revenues. As a result, Holders of the New Notes should not expect
Finance Corp. to participate in servicing any of the obligations on the New
Notes. See "Description of New Notes--Certain Covenants."
The Company will accept for exchange from an Eligible Holder any and all Old
Notes that are validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. For purposes of the Exchange Offer, "Eligible Holder" shall
mean the registered owner of any Old Notes that remain Transfer Restricted
Securities, as reflected on the records of Norwest Bank Minnesota, National
Association, as registrar for the Old Notes (in such capacity, the "Registrar"),
or any person whose Old Notes are held of record by the depository of the Old
Notes. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. For purposes of the Exchange Offer,
"Transfer Restricted Securities" means each Old Note until the earliest to occur
of (i) the date on which such Old Note is exchanged in this Exchange Offer and
entitled to be resold to the public by the holder thereof without complying with
the prospectus delivery provisions of the Securities Act, (ii) the date on which
such Old Note is registered under the Securities Act and is disposed of in a
shelf registration statement, if applicable, or (iii) the date on which such Old
Note has been distributed to the public pursuant to Rule 144 under the
Securities Act or by a broker-dealer pursuant to the plan of distribution
described herein. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. If the Company terminates
the Exchange Offer and does not accept for exchange any Old Notes, it will
promptly return the Old Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 270 days after the
effective date hereof, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "The Exchange
Offer" and "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Notes.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. If a
market for the New Notes should develop, the New Notes could trade at a discount
from their principal amount. The Company does not currently intend to list the
New Notes on any securities exchange or to seek approval for quotation through
any automated quotation system. There can be no assurance that an active public
market for the New Notes will develop.
The Exchange Agent for the Exchange Offer is Norwest Bank Minnesota,
National Association.
----------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE
OFFER.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is not necessarily complete and is qualified in its
entirety by reference to the exhibit or schedule for a complete statement of its
terms and conditions, although all of the material terms of the Company's
contracts and agreements that would be material to an investor have been
summarized in this Prospectus. In addition, upon the effectiveness of the
Registration Statement filed with the Commission, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith the Company will file
periodic reports and other information with the Commission relating to its
business, financial statements and other matters. Any interested parties may
inspect and/or copy the Registration Statement, its schedules and exhibits, and
the periodic reports and other information filed in connection therewith, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The obligations of the Company under
the Exchange Act to file periodic reports and other information with the
Commission may be suspended, under certain circumstances, if the New Notes are
held of record by fewer than 300 holders at the beginning of any fiscal year and
are not listed on a national securities exchange. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding it will furnish
to the holders of the Notes, and if required by the Exchange Act, file with the
Commission all annual, quarterly and current reports that the Company is or
would be required to file with the Commission pursuant to Section 13(a) or 15(d)
of the Exchange Act. In addition, for so long as any of the Old Notes remain
outstanding, the Company has agreed to make available to any prospective
purchaser of the Old Notes or beneficial owner of the Old Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS FILED BY THE COMPANY,
INCLUDING EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE TO ANY REGISTERED HOLDER OR
BENEFICIAL OWNER OF THE OLD NOTES UPON WRITTEN OR ORAL REQUEST AND WITHOUT
CHARGE FROM FLORIDA COAST PAPER COMPANY, L.L.C., 600 U.S. HIGHWAY 98, PORT ST.
JOE, FLORIDA 32456, ATTENTION: CHIEF FINANCIAL OFFICER. TELEPHONE REQUESTS MAY
BE DIRECTED TO THE COMPANY AT (904) 227-1171. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY , 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL CAPITALIZED TERMS USED IN THIS PROSPECTUS
WITHOUT A DEFINITION ARE DEFINED AS SET FORTH BELOW UNDER THE CAPTION
"DESCRIPTION OF NEW NOTES--CERTAIN DEFINITIONS."
THE COMPANY
Florida Coast Paper Company, L.L.C. was formed by Stone Container
Corporation ("Stone"), the largest producer of linerboard in the world, and Four
M Corporation ("Four M"), one of the largest independent converters of
corrugated packaging materials in North America, to acquire the linerboard mill
operations (the "Mill") of St. Joe Forest Products Company ("St. Joe"). The
Mill, located in Port St. Joe, Florida, is a major manufacturer of mottled white
and unbleached kraft linerboard, the principal component of corrugated
containers and corrugated packaging materials. On May 30, 1996, Stone and Four M
(together, the "Joint Venture Partners") through the Company acquired the Mill
for its strategic location and to fulfill a portion of the linerboard
requirements of their respective corrugated container facilities, many of which
are located in the Southeast. Pursuant to an Output Purchase Agreement (the
"Output Purchase Agreement") entered into on May 30, 1996, each of the Joint
Venture Partners has committed to purchase one-half of the Mill's entire
linerboard production.
The Mill has two paper machines which are capable of producing approximately
500,000 tons of linerboard annually in a variety of grades and basis weights.
Since 1990, approximately $147.8 million has been spent for the maintenance and
modernization of the Mill's plant, equipment and machinery and for environmental
compliance. In 1994 and 1995, under the management of St. Joe, the Mill produced
approximately 477,990 and 441,229 tons, respectively, operating at approximately
95.6% and 88.2% of capacity, respectively, during such periods. The Mill's
production presently is approximately evenly divided between mottled white
linerboard, a premium priced product, and unbleached kraft linerboard.
Pursuant to the Output Purchase Agreement, each of the Joint Venture
Partners has agreed to purchase from the Company one-half of the Mill's entire
linerboard production at a price that is $25 per ton below the price of such
product published in PULP & PAPER WEEK, an industry trade publication, under the
section entitled "Price Watch: Paper and Paperboard," subject to a minimum
purchase price, which minimum purchase price is intended to generate sufficient
funds to cover cash operating costs, cash interest expense and maintenance
capital expenditures. Furthermore, in addition to an initial investment of $40.0
million in the Company, the Joint Venture Partners have severally agreed to
provide the Company with a $20.0 million subordinated line of credit for general
corporate purposes (the "Subordinated Credit Facility").
The Company intends to capitalize on Stone's operating experience to
implement an operating strategy for the Mill that the Company believes will
enable it to increase productivity and profitability. The key elements of this
operating strategy include:
- INCREASING LINERBOARD PRODUCTION. The Company believes it will be able to
increase production yields by improving product quality consistency and by
decreasing machine downtime through technology upgrades of its machines.
- IMPROVING OPERATING EFFICIENCY. The Company believes it will be able to
improve operating efficiency by reducing the frequency of grade
changeovers, implementing new operating and training procedures for its
employees and decreasing machine downtime.
- REDUCING COSTS. The Company believes it will be able to reduce costs by
preventive maintenance and process improvements. Through increased
production and improved operating efficiency, the Company believes it can
also lower operating costs per ton. Areas targeted for cost reduction
include raw materials, labor and energy.
1
<PAGE>
THE ACQUISITION
On November 1, 1995, the Company entered into an Asset Purchase Agreement
(the "Acquisition Agreement") pursuant to which, on May 30, 1996, the Company
acquired the assets of the Mill for a purchase price of $185.0 million for the
fixed assets, plus approximately $17.4 million for working capital, for a total
purchase price of $202.4 million, subject to adjustment for changes in working
capital as described herein. The funds required to consummate the Acquisition of
the Mill and pay related transaction costs consisted of (i) $165.0 million from
the proceeds of the Offering (as defined herein), (ii) $40.0 million of equity
contributed by Florida Coast Paper Holding Co., L.L.C. and its subsidiary
(together, "Florida Coast Holding"), and (iii) a $10.0 million subordinated note
of the Company (the "Subordinated Note") issued to St. Joe pursuant to the
Acquisition Agreement. See "The Acquisition."
In addition to the Output Purchase Agreement and the Subordinated Credit
Facility, on May 30, 1996, the Company entered into a Wood Fiber Supply
Agreement (the "Fiber Agreement") with St. Joseph Land and Development Company
("St. Joe Land"), a subsidiary of St. Joe, pursuant to which St. Joe Land will
supply a specified quantity of pulpwood and wood chips to the Company. In
addition, the Company entered into a procurement agreement (the "Stone
Procurement Agreement") with Stone pursuant to which Stone will use its best
efforts to procure additional wood fiber on behalf of the Company. See "The
Acquisition."
ISSUANCE OF THE OLD NOTES
The outstanding $165.0 million principal amount of 12 3/4% Series A First
Mortgage Notes due 2003 (the "Old Notes") were sold by the Issuers to Bear,
Stearns & Co. Inc. (the "Initial Purchaser") on May 30, 1996 (the "Closing
Date") pursuant to a Purchase Agreement, dated May 23, 1996 (the "Purchase
Agreement"), among the Issuers and the Initial Purchaser. The Initial Purchaser
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act and other available exemptions under the Securities Act (the "Offering").
The Issuers and the Initial Purchaser also entered into the Registration Rights
Agreement, dated as of May 30, 1996 (the "Registration Rights Agreement"), among
the Issuers and the Initial Purchaser, pursuant to which the Issuers granted
certain registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer is intended to satisfy certain of the Issuers' obligations under
the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer--Purposes and Effects."
The Old Notes were issued under the Indenture, dated as of May 30, 1996 (the
"Indenture"), among the Issuers and Norwest Bank Minnesota, National Association
as trustee (in such capacity, the "Trustee"). The New Notes are also being
issued under the Indenture and are entitled to the benefits of the Indenture.
The form and terms of the New Notes will be identical in all material respects
to the form and terms of the Old Notes, except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, (ii) holders of New Notes will not be entitled
to the Liquidated Damages otherwise payable under the terms of the Registration
Rights Agreement in respect of Old Notes constituting Transfer Restricted
Securities held by such holders during any period in which a Registration
Default (as defined) is continuing (the "Liquidated Damages") and (iii) holders
of New Notes will no longer be, and upon the consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be, entitled to certain rights
under the Registration Rights Agreement intended for the holders of unregistered
securities. The Exchange Offer shall be deemed consummated upon the delivery by
the Issuers to the Exchange Agent under the Indenture of New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
are validly tendered by holders thereof pursuant to the Exchange Offer. See "The
Exchange Offer--Termination of Certain Rights" and "--Procedures for Tendering"
and "Description of New Notes--Registration Rights; Liquidated Damages."
RECENT PERFORMANCE
In the first quarter of 1996, the Mill experienced a continued decline in
the prices for its products as a result of a decline in industry-wide demand
during such period. This decline in prices and demand has had a negative effect
on certain financial results of the Mill. The Mill's net sales declined to $49.8
million for the
2
<PAGE>
three month period ended March 31, 1996 (the "1996 Period") from $62.4 million
for the three-month period ended March 31, 1995 (the "1995 Period") primarily
due to a decline in selling prices for the Mill's products and a decline in
sales volume. The decline in volume was due, in part, to a temporary 10 day
shutdown of one of the Mill's paper machines in January 1996 for maintenance and
to decrease excess inventory. The Mill's net income decreased to $2.5 million in
the 1996 Period from $9.2 million in the 1995 Period. The Mill experienced
additional downtime of both of its paper machines from April 7, 1996 through May
6, 1996. During the second quarter of 1996, prices for the Mill's products have
continued to decline as a result of a continued decline in industry-wide demand.
This decline will have a negative impact on the financial results of the Mill.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company is a limited liability company organized under the laws of
Delaware. The principal executive office of the Company is located at 600 U.S.
Highway 98, Port St. Joe, Florida 32456 and its telephone number is (904)
227-1171.
THE EXCHANGE OFFER
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THE EXCHANGE OFFER................ The Issuers are offering, upon the terms and subject to
the conditions set forth herein and in the accompanying
letter of transmittal (the "Letter of Transmittal"), to
exchange its 12 3/4% Series B First Mortgage Notes due
2003 (the "New Notes," and, with the Old Notes, the
"Notes") for an identical face amount of the outstanding
Old Notes (the "Exchange Offer"). As of the date of this
Prospectus, $165.0 million in aggregate principal amount
of the Old Notes is outstanding, the maximum amount
authorized by the Indenture for all Notes. As of
, 1996, there were registered holders of
the Old Notes, including Cede & Co. ("Cede"), which held
$ of aggregate amount of the Old Notes for of
its participants. See "The Exchange Offer--Terms of the
Exchange Offer."
EXPIRATION DATE................... 5:00 p.m., New York City time, on , 1996, as
the same may be extended. See "The Exchange
Offer--Expiration Date; Extension; Termination;
Amendments."
CONDITIONS OF THE EXCHANGE
OFFER............................ The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to
certain customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions of the
Exchange Offer."
ACCRUED INTEREST ON THE OLD
NOTES............................ The New Notes will bear interest at a rate equal to
12 3/4% per annum from and including their date of
issuance. Eligible Holders whose Old Notes are accepted
for exchange will have the right to receive interest
accrued thereon from the date of original issuance of
the Old Notes or the last Interest Payment Date, as
applicable, to, but not including, the date of issuance
of the New Notes, such interest to be payable with the
first interest payment on the New Notes. Interest on the
Old Notes accepted for exchange, which accrues at the
rate of 12 3/4% per annum, will cease to accrue on the
day prior to the issuance of the New Notes.
PROCEDURES FOR TENDERING OLD
NOTES............................ Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained
</TABLE>
3
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<S> <C>
herein and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together with
the Old Notes and any other required documentation to
the exchange agent (the "Exchange Agent") at the address
set forth herein. Old Notes may be physically delivered,
but physical delivery is not required if a confirmation
of a book-entry of such Old Notes to the Exchange
Agent's account at The Depositary Trust Company ("DTC"
or the "Depositary") is delivered in a timely fashion.
By executing the Letter of Transmittal, each holder will
represent to the Company that, among other things, the
New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any
such other person is engaged in, or intends to engage
in, or has an arrangement or understanding with any
person to participate in, the distribution of such New
Notes and that neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 of
the Securities Act, of any Issuer. Each broker or dealer
that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by
such broker or dealer as a result of market-making
activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer--Procedures for Tendering" and "Plan of
Distribution."
GUARANTEED DELIVERY PROCEDURES.... Eligible Holders of Old Notes who wish to tender their
Old Notes and (i) whose Old Notes are not immediately
available or (ii) who cannot deliver their Old Notes or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date (or complete the procedure for
book-entry transfer on a timely basis), may tender their
Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. See
"The Exchange Offer--Guaranteed Delivery Procedures."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES............ Upon satisfaction or waiver of all conditions of the
Exchange Offer, the Company will accept any and all Old
Notes that are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly after
acceptance of the Old Notes. See "The Exchange Offer--
Procedures for Tendering."
WITHDRAWAL RIGHTS................. Tenders of Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer."
THE EXCHANGE AGENT................ Norwest Bank Minnesota, National Association is the
exchange agent (in such capacity, the "Exchange Agent").
The address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer--The Exchange
Agent."
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FEES AND EXPENSES................. All expenses incident to the Company's consummation of
the Exchange Offer and compliance with the Registration
Rights Agreement will be borne by the Company. The
Company will also pay certain transfer taxes applicable
to the Exchange Offer. See "The Exchange Offer--Fees and
Expenses."
RESALES OF THE NEW NOTES.......... Based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties,
the Issuers believe that New Notes issued pursuant to
the Exchange Offer to an Eligible Holder in exchange for
Old Notes may be offered for resale, resold and
otherwise transferred by such Eligible Holder (other
than (i) a broker-dealer who purchased the Old Notes
directly from the Issuers for resale pursuant to Rule
144A under the Securities Act or any other available
exemption under the Securities Act, or (ii) a person
that is an affiliate of the Issuers within the meaning
of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the
Eligible Holder is acquiring the New Notes in the
ordinary course of business and is not participating,
and has no arrangement or understanding with any person
to participate, in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes
were acquired by such broker as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The
Exchange Offer--Purposes and Effects" and "Plan of
Distribution."
</TABLE>
DESCRIPTION OF NEW NOTES
The Exchange Offer applies to $165.0 million aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes, except for certain transfer restrictions and registration and
other rights relating to the exchange of the Old Notes for New Notes. The New
Notes will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture under which both the Old Notes were, and the New Notes
will be, issued. See "Description of New Notes."
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ISSUERS........................... Florida Coast Paper Company, L.L.C. and Florida Coast
Paper Finance Corp.
SECURITIES OFFERED................ $165.0 million in aggregate principal amount of 12 3/4%
Series B First Mortgage Notes due 2003.
MATURITY DATE..................... June 1, 2003
INTEREST AND INTEREST PAYMENT
DATES............................ The New Notes will bear interest at the rate of 12 3/4%
per annum, payable semi-annually in arrears on June 1
and December 1, commencing December 1, 1996.
RANKING........................... The New Notes will be senior secured obligations of the
Issuers that will rank senior in right of payment to all
subordinated indebtedness of the Issuers and PARI PASSU
in right of payment with all other existing and future
senior indebtedness of the Issuers. As of March 31,
1996, after giving pro forma effect to the Acquisition
and the financings therefor, the Issuers would have had
outstanding $175.0 million of indebtedness, including
the New Notes.
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5
<PAGE>
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<S> <C>
SECURITY.......................... The New Notes will be secured by a first mortgage on all
real property and improvements comprising the Mill and a
first priority security interest in substantially all of
the equipment of the Mill and certain other assets (but
excluding, among other things, inventories and accounts
receivable, and the proceeds thereof) (the
"Collateral"). See "Description of New Notes--
Security."
OPTIONAL REDEMPTION............... The New Notes will not be redeemable at the Issuers'
option prior to June 1, 2000. Thereafter, the New Notes
will be subject to redemption, at the option of the
Issuers, in whole or in part, at the redemption prices
set forth herein plus accrued and unpaid interest and
Liquidated Damages, if any, to the applicable redemption
date. Notwithstanding the foregoing, at any time prior
to June 1, 1999, the Issuers may redeem up to one-third
in aggregate principal amount of the New Notes at a
redemption price of 112.75% of the principal amount
thereof, in each case plus accrued and unpaid interest
and Liquidated Damages, if any, to the redemption date,
with the net proceeds of a public offering of Capital
Stock (other than Disqualified Stock) of the Company;
PROVIDED that at least two-thirds in aggregate principal
amount of the New Notes originally issued under the
Indenture remain outstanding immediately after the
occurrence of each such redemption; and PROVIDED,
FURTHER, that such redemption shall occur within 60 days
of the date of the closing of such public offering of
Capital Stock (other than Disqualified Stock) of the
Company. In addition, upon the occurrence of a Change of
Control prior to June 1, 2000, the Issuers, at their
option, may redeem all, but not less than all, of the
outstanding New Notes at a redemption price equal to
100% of the principal amount thereof plus the applicable
Make-Whole Premium. See "Description of New
Notes--Optional Redemption."
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control at any time,
the Issuers will be required to make an offer to
repurchase each Holder's New Notes at a price equal to
101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance that the Issuers
will have the financial resources to purchase the New
Notes upon a Change of Control. See "Description of New
Notes--Repurchase at the Option of Holders."
COVENANTS......................... The indenture pursuant to which the New Notes will be
issued (the "Indenture") contains certain covenants
that, among other things, limit the ability of the
Issuers to incur additional indebtedness, make
distributions, repurchase Equity Interests (as defined
herein) or repay subordinated Indebtedness or make
certain other Restricted Payments (as defined herein),
create certain liens, enter into certain transactions
with affiliates, sell assets or enter into certain
mergers and consolidations. See "Description of New
Notes--Certain Covenants."
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6
<PAGE>
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<S> <C>
USE OF PROCEEDS................... There will be no proceeds to the Issuers pursuant to the
Exchange Offer. The net proceeds from the issuance of
the Old Notes were used to fund a portion of the cash
required to consummate the Acquisition.
ABSENCE OF A PUBLIC MARKET FOR THE
NEW NOTES........................ The New Notes are a new issue of securities with no
established market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the New Notes. The Initial Purchaser has
advised the Issuers that it currently makes a market in
the Notes. However, the Initial Purchaser is not
obligated to do so, and any market-making with respect
to the New Notes may be discontinued at any time without
notice. The Issuers do not currently intend to apply for
listing of the New Notes on any securities exchange.
</TABLE>
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY ELIGIBLE
HOLDERS EVALUATING THE EXCHANGE OFFER, SEE "RISK FACTORS."
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<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data (except pro forma information and tons
produced) are derived from the audited financial statements of St. Joe Forest
Products Company--Linerboard Mill Operations for each of the years in the
three-year period ended December 31, 1995, and the unaudited financial
statements of St. Joe Forest Products Company--Linerboard Mill Operations as of
and for the three months ended March 31, 1995 and 1996, which are included
elsewhere herein. Pro forma information and tons produced are derived from other
information provided by St. Joe. The following summary financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and the notes
thereto included elsewhere in this Prospectus.
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<CAPTION>
ACTUAL
----------------------------------------------------- PRO FORMA (1)
THREE --------------------------
MONTHS THREE
ENDED MONTHS
YEARS ENDED DECEMBER 31, MARCH 31, YEAR ENDED ENDED MARCH
------------------------------- -------------------- DECEMBER 31, 31,
1993 1994 1995 1995 1996 1995 1996
--------- --------- --------- --------- --------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 153,005 $ 192,886 $ 239,165 $ 62,375 $ 49,759 $ 230,680 $ 49,165
Cost of sales................... 167,247 183,800 180,788 47,331 45,106 174,469 42,691
Selling, general and
administrative expenses........ 4,199 3,077 4,672 800 766 4,365 706
--------- --------- --------- --------- --------- ------------- -----------
Operating profit (loss)......... (18,441) 6,009 53,705 14,244 3,887 51,846 5,768
Interest income................. 97 383 962 355 -- 962 --
Interest expense................ -- -- -- -- -- 23,502 5,859
Other income, net............... 430 227 95 33 122 95 122
--------- --------- --------- --------- --------- ------------- -----------
Income (loss) before income
taxes and cumulative effect of
change in accounting
principle...................... (17,914) 6,619 54,762 14,632 4,009 29,401 31
Provision (benefit) for income
taxes.......................... (5,871) 2,453 20,294 5,423 1,486 1,617 2
--------- --------- --------- --------- --------- ------------- -----------
Income (loss) before cumulative
effect of change in accounting
principle...................... $ (12,043) $ 4,166 $ 34,468 $ 9,209 $ 2,523 $ 27,784 $ 29
--------- --------- --------- --------- --------- ------------- -----------
--------- --------- --------- --------- --------- ------------- -----------
OTHER DATA:
EBITDA (2)...................... $ 6,010 $ 29,687 $ 77,759 $ 20,164 $ 10,128 $ 60,718 $ 7,986
Depreciation.................... 24,451 23,678 24,054 5,920 6,241 8,872 2,218
Capital expenditures............ 13,381 8,321 22,457 3,140 2,486 22,457 2,486
Ratio of EBITDA to cash interest
expense........................ -- -- -- -- -- 2.9x 1.5x
Tons produced................... 444,006 477,990 441,229 123,292 109,056 441,229 109,056
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
ACTUAL PRO FORMA (1)
--------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 20,346 $ 20,530
Property, plant and equipment, net.................................................... 165,669 187,970
Total assets.......................................................................... 193,004 229,563
Total long-term debt.................................................................. -- 175,000
Total stockholder's equity............................................................ 150,183 --
Total members' equity................................................................. -- 40,000
</TABLE>
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(1) Gives pro forma effect to the Acquisition and the financings therefor as if
such transactions had occurred on January 1, 1995 with respect to the
statement of operations data and other data and as of March 31, 1996 with
respect to the balance sheet data. See "Unaudited Pro Forma Financial
Data."
(2) EBITDA is defined as operating profit (loss) plus depreciation and
amortization, if any. EBITDA is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from continuing operations, or other income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity.
8
<PAGE>
RISK FACTORS
HOLDERS OF THE NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE DECIDING TO
TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
SUBSTANTIAL LEVERAGE
Since the issuance of the Old Notes and subsequent to the Acquisition, the
Company has become highly leveraged. As of March 31, 1996, after giving pro
forma effect to the Acquisition and the financings therefor, the Company would
have had outstanding $175.0 million of indebtedness, including the New Notes.
See "Capitalization."
The significant indebtedness incurred as a result of the Acquisition has
several important consequences to the Holders of the New Notes, including, but
not limited to, the following: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to service such indebtedness, and the
failure of the Company to generate sufficient cash flow to service such
indebtedness could result in a default under such indebtedness, including under
the New Notes; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or for other
purposes may be impaired; (iii) the Company's flexibility to expand, make
capital expenditures and respond to changes in the industry and economic
conditions generally may be limited; (iv) the Indenture and the Subordinated
Note contain, and future agreements relating to the Company's indebtedness may
contain, numerous financial and other restrictive covenants, including, among
other things, limitations on the ability of the Company to incur additional
indebtedness, to create liens and other encumbrances, to make certain payments
and investments, to sell or otherwise dispose of assets, or to merge or
consolidate with another entity, the failure to comply with which may result in
a default under such agreements, which, if not cured or waived, could have a
material adverse effect on the Company; and (v) the ability of the Company to
satisfy its obligations pursuant to such indebtedness, including pursuant to the
New Notes and the Indenture, will be dependent upon factors affecting the
business and operations of the Company, some of which are not in the control of
the Company.
INDUSTRY CONDITIONS; DEMAND AND PRICING
The markets in which the Company sells linerboard are highly competitive and
sensitive to changes in industry capacity and cyclical changes in the economy.
Both of these characteristics can significantly impact selling prices and
thereby the Company's profitability. Beginning in 1989, the Mill experienced
substantial declines in the prices of its products as a result of a decline in
industry-wide demand. Beginning in late 1993, demand improved, which allowed the
Mill to increase prices for most of its products to levels above the historical
high prices achieved during the peak of the last industry cycle. Recently,
prices for the Mill's products have declined due to increased capacity in the
industry and decreased demand for such products. Consequently, in December 1995
and January 1996, one of the Mill's paper machines was temporarily shut down for
maintenance and to decrease excess inventory. The Mill experienced additional
downtime of both of its paper machines from April 7, 1996 through May 6, 1996.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Although the Joint Venture Partners have committed to purchase the
Company's entire output of linerboard, the prices at which those purchases will
be made and production volume will be influenced by market conditions. See "The
Acquisition."
Wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber are
dependent upon a variety of factors, many of which are not in the Company's
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. A decrease in the
supply of wood fiber, particularly in the southeastern United States due to
environmental and conservation considerations, has caused, and will likely
continue to cause, higher wood fiber prices in that region. In addition, the
increase in demand for products manufactured in whole or in part from recycled
fiber has caused a shortage of recycled fiber, particularly old corrugated
containers ("OCC") used in the manufacture of recycled linerboard and related
products.
9
<PAGE>
Prior to the Acquisition, St. Joe Land and the Mill were owned by St. Joe
and, therefore, the Mill did not experience any significant difficulty in
obtaining fiber. In connection with the Acquisition, St. Joe Land and the
Company entered into the Fiber Agreement pursuant to which St. Joe Land will
supply pulpwood and wood chips to the Company for an initial term of 15 years.
During the first year of the Fiber Agreement, St. Joe Land is expected to meet
approximately 87% of the Company's wood fiber needs and will reduce its fiber
supply to the Company to approximately one-half of the Company's current needs
by the fourth year of the term of the Fiber Agreement. In addition, pursuant to
the Stone Procurement Agreement, Stone has agreed to use its best efforts to
procure additional wood fiber on behalf of the Company. There can be no
assurance that the Company will be able to obtain fiber from other suppliers
when volume commitments decrease pursuant to the Fiber Agreement or in the event
Stone is unable to procure fiber pursuant to the terms of the Stone Procurement
Agreement. See "The Acquisition" and "Business--Supply Requirements."
ENVIRONMENTAL MATTERS
The operations of the Mill are subject to extensive and changing
environmental regulation by federal, state and local authorities in the United
States. St. Joe has previously made significant capital expenditures to comply
with water, air and solid and hazardous waste regulations. The Company expects
to make significant expenditures in the future. The Company anticipates that
environmental capital expenditures will be approximately $2.0 million in each of
1996 and 1997.
In November 1993, the U.S. Environmental Protection Agency (the "EPA")
announced proposed regulations, known as the "cluster rules," that would require
more stringent controls on air and water discharges from pulp and paper mills
under the Clean Water Act and the Clean Air Act. In March 1996, the EPA reopened
the comment period for certain of the proposed cluster rule air regulations and
proposed additional regulations regarding air discharges. It is expected that
the cluster rules, if adopted as currently proposed, would require substantial
capital expenditures by the Company, particularly with respect to the production
of mottled white linerboard. Pulp and paper manufacturers have submitted
extensive comments to the EPA on the proposed regulations in support of the
position that requirements under the proposed regulations are unnecessarily
complex, burdensome and environmentally unjustified. It cannot be predicted at
this time whether the EPA will modify the requirements in the final regulations.
Based on information presently available from the EPA, it is expected that the
EPA will promulgate the final cluster rules in 1996. In addition, the Company
anticipates that the earliest time for industry compliance with certain aspects
of the regulations should not be prior to the last quarter of 1997, and that
compliance with the remaining elements will be required by the end of 1999. The
Company is considering and evaluating the potential impact of the proposed
regulations on its operations and capital expenditures over the next several
years. The Company estimates the capital spending that may be required to comply
with a majority of the final regulations could be $27.0 million over a
three-year period beginning in 1997 (but could reach as high as $67.0 million
under the currently proposed regulations). If the Company determines to
discontinue the production of mottled white linerboard, the Company estimates
the capital spending that may be required to comply with the majority of the
final regulations could be $5.0 million over a three-year period beginning in
1997 (but could reach as high as $45.0 million under the currently proposed
regulations). The ultimate financial impact of the regulations on the Company
cannot be accurately estimated at this time but will depend on the nature of the
final regulations, the timing of required implementation and the cost and
availability of new technology.
The Company may determine that, under the final regulations, the costs
associated with the production of mottled white linerboard may be prohibitive
and may discontinue its production. Because of the current higher margins
associated with mottled white linerboard, in the event the Company discontinues
the production of mottled white linerboard, its revenues and profit margins may
decrease.
In March 1996, the EPA announced plans to propose a new Clean Air Act
regulation that may impose additional restrictions on the air emissions from
combustion sources at the Mill. Although the EPA is not expected to publish the
rule in proposed form until late 1996, based on the Company's current
understanding of the rule, the Company estimates that it may result in the
incurrence of capital costs of approximately $5.0 million to $10.0 million.
These capital costs are expected to be incurred over a three-year period after
the rule becomes final.
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<PAGE>
In addition, the Company may from time to time be subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought.
Pursuant to the Acquisition Agreement, St. Joe, St. Joe Paper Company ("St.
Joe Paper") and St. Joe Container Company ("St. Joe Container" and, together
with St. Joe and St. Joe Paper, the "Paper Indemnitors"), have agreed to
indemnify the Company for certain environmental matters based on activities
prior to the closing of the Acquisition (the "Closing"). There can be no
assurance that this indemnification will be sufficient to reimburse the Company
for all environmental liabilities. See "Business--Environmental Matters."
RELATIONSHIP WITH STONE AND FOUR M; POTENTIAL CONFLICTS OF INTEREST
Certain of the directors and executive officers of each of the Joint Venture
Partners each function on behalf of such Joint Venture Partners in connection
with the management of the Company. Consequently, there may be conflicts of
interest with respect to certain decisions which may arise in the ordinary
course of the operation of the businesses of Stone, Four M and the Company, the
resolution of which may be to the detriment of the Company and could have a
material adverse effect on the Company's business and results of operations. See
"The Acquisition" and "Management." Furthermore, business decisions to be made
by the Joint Venture Partners with respect to the operations of the Company may
come to a deadlock because each Joint Venture Partner will participate equally
in such matters.
Pursuant to the Output Purchase Agreement, Stone and Four M have each agreed
to purchase one-half of the Mill's entire linerboard production. Any breach of
this agreement, or material adverse change in the financial viability of either
Stone or Four M, could have a material adverse effect on the Company's business
and results of operations. Pursuant to the Subordinated Credit Facility, Stone
and Four M have each agreed to provide the Company with up to $10.0 million, if
needed, on a revolving credit basis for general corporate purposes. There can be
no assurance that Stone and Four M will be able to meet their respective
obligations under such facility and any failure to meet such obligations could
have a material adverse effect on the Company's business and results of
operations. In addition, because the Joint Venture Partners control the Company,
there can be no assurance that the Joint Venture Partners will cause the Company
to borrow funds from the Joint Venture Partners under the Subordinated Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON SINGLE FACILITY
All of the Company's revenues are derived from the operations of the Mill.
Prolonged downtime for repairs or other reasons could materially adversely
affect the Company's business and results of operations. Notwithstanding the
fact that the Company maintains insurance coverage against certain losses, any
such loss or significant impairment to the Mill or its paper machines could have
a material adverse effect on the Company's financial position and results of
operations. In addition, the Company is a newly formed entity that has never
operated as a separate stand-alone company.
LABOR MATTERS
The Company is not assuming St. Joe's obligations under its collective
bargaining agreements. However, the Company will be required to negotiate new
collective bargaining agreements covering such employees. There can be no
assurance that the Company will be successful in renegotiating collective
bargaining agreements relating to the employees at the Mill, or that the Company
will not incur increased costs as a result of such negotiations. In addition, an
extended interruption of operations at the Mill could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business--Employees."
UNCERTAIN VALUE OF SECURITY INTERESTS
No assurance can be given that the proceeds of a sale of the Collateral
securing the Notes would be sufficient to repay all of the Notes upon a
foreclosure. If the net proceeds received from the sale of the Collateral (after
payment of expenses relating to the sale) were insufficient to pay all amounts
due on the Notes, then Holders of the Notes would (to the extent of such
insufficiency) only have an unsecured claim against any remaining unencumbered
assets of the Company. As a result, there is a risk that Holders of the
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Notes will receive less than their investment upon any liquidation of the
Company. Furthermore, the ability of the Trustee to cause the Collateral to be
sold will be delayed if the Company is the subject of any bankruptcy or
receivership proceedings.
FRAUDULENT TRANSFER STATUTES
Under federal or state fraudulent transfer laws, the Notes may be
subordinated to existing or future indebtedness of the Company or found not to
be enforceable in accordance with their terms. Under such statutes, if a court
were to find that, at the time the Notes were issued, the Company was insolvent,
was rendered insolvent by the issuance of the Notes together with the
substantially concurrent use of the proceeds therefrom, was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital, intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured, or
intended to hinder, delay or defraud its creditors, such court could void the
Company's obligations under the Notes, or subordinate the Notes to all other
indebtedness of the Company. In that event, there can be no assurance that any
repayment of the Notes could ever be recovered by Holders of the Notes.
For purposes of the foregoing, the measure of insolvency varies depending
upon the law of the jurisdiction that is being applied. Generally, however, the
Company would be considered to have been insolvent at the time the Notes were
issued if the sum of its debts was, at that time, greater than the sum of the
value of all of its property at a fair valuation, or if the then fair saleable
value of its assets was less than the amount that was then required to pay its
probable liability on its existing debts as they become absolute and matured.
There can be no assurance as to the standard a court would apply in order to
determine whether the Company was insolvent as of the date the Notes were
issued, or that, regardless of the method of valuation, a court would not
determine that the Company was insolvent on that date. Nor can there be any
assurance that a court would not determine, regardless of whether the Company
was insolvent on the date the Notes were issued, that the payments constituted
fraudulent transfers on another of the grounds listed above.
CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control at any time, the Issuers will be
required to offer to repurchase each Holder's New Notes at a repurchase price
equal to 101% of the aggregate principal amount thereof. There can be no
assurance that the Issuers will have the financial resources to effect any such
repurchase. See "Description of New Notes--Repurchase at the Option of
Holders--Change of Control."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuers do not currently anticipate that
they will register the Old Notes under the Securities Act. New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of the Issuers within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period 270 days after the effective date of the Exchange
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Offer Registration Statement (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes will be
adversely affected.
ABSENCE OF PUBLIC MARKET
Prior to this Prospectus, there has been no public market for the New Notes,
and there can be no assurance that such a market will develop. In addition, the
Issuers do not currently intend to apply for listing of the New Notes on any
securities exchange. If a market for the New Notes should develop, such New
Notes may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the Company's
performance and other factors. The Issuers have been advised by the Initial
Purchaser that it currently makes a market in the Notes, as permitted by
applicable laws and regulations; however, the Initial Purchaser is not obligated
to do so, and any such market-making activities may be discontinued at any time
without notice. In addition, such market-making activity may be limited during
the Exchange Offer. Therefore, there can be no assurance that an active market
for any of the Notes will develop, either prior to or after the Issuers'
performance of their obligations under the Registration Rights Agreement.
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THE EXCHANGE OFFER
PURPOSES AND EFFECTS
The Old Notes were sold by the Issuers on May 30, 1996 to the Initial
Purchaser, who resold the Old Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act). In
connection with the sale of the Old Notes, the Issuers and the Initial Purchaser
entered into the Registration Rights Agreement pursuant to which the Issuers
agreed to file with the Commission a registration statement (the "Exchange Offer
Registration Statement") with respect to an offer to exchange the Old Notes for
New Notes within 45 days following the closing date of the Old Notes. In
addition, the Issuers agreed to use their best efforts to cause the Exchange
Offer Registration Statement to become effective under the Securities Act and to
issue the New Notes pursuant to the Exchange Offer. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Exchange Offer Registration
Statement.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Issuers' obligations thereunder. For purposes of the
Exchange Offer, the term "Eligible Holder" shall mean the registered owner of
any Old Notes that remain Transfer Restricted Securities, as reflected on the
records of Norwest Bank Minnesota, National Association as registrar for the Old
Notes (in such capacity, the "Registrar"), or any person whose Old Notes are
held of record by the depository of the Old Notes. The Issuers are not required
to include any securities other than the New Notes in the Exchange Offer
Registration Statement. Holders of Old Notes who do not tender their Old Notes
or whose Old Notes are tendered but not accepted would have to rely on
exemptions from registration requirements under the securities laws, including
the Securities Act, if they wish to sell their Old Notes.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to the Issuers, the Issuers
believe that the New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by any
holder of such New Notes (other than a person that is an "affiliate" of the
Issuers within the meaning of Rule 405 under the Securities Act and except as
set forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes.
If any person were to be participating in the Exchange Offer for the purpose
of distributing securities in a manner not permitted by the Commission's
interpretation, (i) the position of the staff of the Commission enunciated in
interpretive letters would be inapplicable to such person and (ii) such person
would be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Issuers accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction. Prior to the Exchange Offer,
however, the Issuers will use their best efforts to register or qualify the New
Notes for offer and sale under the securities or blue sky laws of such
jurisdictions as is necessary to permit consummation of the Exchange Offer and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Issuers will accept any and
all Old Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined below). The Issuers will issue up to $165.0 million
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aggregate principal amount of New Notes in exchange for a like principal amount
of outstanding Old Notes which are validly tendered and accepted in the Exchange
Offer. Subject to the conditions of the Exchange Offer described below, the
Issuers will accept any and all Old Notes which are so tendered. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer; however,
the Old Notes may be tendered only in multiples of $1,000. See "Description of
New Notes."
The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Issuers intend to conduct the Exchange
Offer in accordance with the provisions of the Registration Rights Agreement.
Old Notes which are not tendered for exchange or are tendered but not accepted
in the Exchange Offer will remain outstanding and be entitled to the benefits of
the Indenture, but will not be entitled to any registration rights under the
Registration Rights Agreement.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent for the Exchange Offer. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the New Notes from the
Issuers.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Eligible Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1996, subject to extension by the Issuers by notice to the Exchange
Agent as herein provided. The Issuers reserve the right to so extend the
Exchange Offer at their discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Issuers will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Issuers reserve the right (i) to delay accepting for exchange any Old
Notes for any New Notes or to extend or terminate the Exchange Offer and not
accept for exchange any Old Notes for any New Notes if any of the events set
forth below under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by the Issuers by giving oral or written
notice of such delay or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance for
exchange, extension or amendment will be followed as promptly as practicable by
public announcement thereof. If the Exchange Offer is amended in a manner
determined by the Issuers to constitute a material change, the Issuers will
promptly disclose such amendment in a manner reasonably calculated to inform the
holder of New Notes of such amendment, and the Issuers will extend the Exchange
Offer for a minimum of five business days, depending upon the significance of
the amendment and the manner of disclosure to the holders of the New Notes, if
the Exchange Offer would otherwise expire during such five business-day period.
The rights reserved by the Issuers in this paragraph are in addition to the
Issuers' rights set forth below under the caption "Conditions of the Exchange
Offer."
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TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default, Eligible Holders of Old
Notes are entitled to receive Liquidated Damages in an amount equal to 50 basis
points per annum for each 90 day period or any portion thereof (up to a maximum
of 200 basis points per annum). For purposes of the Exchange Offer, a
"Registration Default" shall occur if (i) the Issuers fail to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing; (ii) any such Registration Statement
is not declared effective by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target Date") or (iii) the Issuers
fail to consummate the Exchange Offer within 30 days of the Effectiveness Target
Date with respect to the Exchange Offer Registration Statements; or (iv) the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with the resales of the New Notes. Following the cure of any and all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of New Notes will not be and, upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be entitled to (i) the right
to receive the Liquidated Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders of Transfer Restricted
Securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Issuers to the Registrar under the Indenture of New Notes
in the same aggregate principal amount as the aggregate principal amount of Old
Notes that are tendered by holders thereof pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING
Only an Eligible Holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, an Eligible Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed, if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Old Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility System may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer in
the Exchange Agent's account at the Depositary, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received or
confirmed by the Exchange Agent at its addresses as set forth under the caption
"Exchange Agent" below prior to 5:00 p.m., New York City time, on the Expiration
Date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by an Eligible Holder of Old Notes will constitute an agreement
between such holder and the Issuers in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Eligible Holders. Instead of delivery by mail, it is recommended that
Eligible Holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent on or
before the Expiration Date. No Letter of Transmittal or Old Notes should be sent
to the Issuers. Eligible Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the tenders for such
holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the
account of an Eligible Institution. In the
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event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantee must be by a
member of a signature guarantee program within the meaning of Rule 17Ad-15 under
the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Old Notes will be determined
by the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuers' acceptance of which might,
in the judgment of the Issuers or their counsel, be unlawful. The Issuers also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Issuers' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such times as the Issuers in their sole discretion shall determine.
Although the Issuers intend to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Issuers, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Issuers reserve the right in their sole discretion (subject
to limitations contained in the Indenture) (i) to purchase or make offers for
any Old Notes that remain outstanding subsequent to the Expiration Date and (ii)
to the extent permitted by applicable law, to purchase Old Notes in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each Eligible Holder will represent to the Issuers that, among
other things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business by the person receiving such New
Notes, whether or not such person is the holder and that neither the Eligible
Holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes and that neither the
Eligible Holder nor any such other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Issuers. If the holder is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, such holder by tendering will acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, or (ii) who cannot deliver their Old Notes and
other required documents to the Exchange Agent or cannot complete the procedure
for book-entry transfer prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Eligible Holder, the certificate
number(s) of such Old Notes (if available) and the principal amount of Old
Notes tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date, the
certificate(s) representing
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the Old Notes to be tendered in proper form for transfer (or a confirmation
of a book-entry transfer into the Exchange Agent's account at the Depositary
of Old Notes delivered electronically) and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) Such certificate(s) representing all tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Old Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Eligible Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date, and prior to acceptance for exchange thereof by the
Issuers. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender, and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by the Issuers in their sole
discretion, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly re-tendered. Any Old Notes
which have been tendered but which are not accepted for exchange or which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be re-tendered by following one
of the procedures described above under "Procedures for Tendering" or
"Guaranteed Delivery Procedures" at any time prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, the
Issuers will not be required to accept for exchange any Old Notes for any New
Notes tendered and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if any of the following conditions
exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority with respect to
the Exchange Offer which, in the sole judgment of the Issuers, might
materially impair the ability of the Issuers to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Issuers; or
(b) there shall have occurred any change, or any development involving a
prospective change, in the business or financial affairs of the Issuers or
any of their subsidiaries, which in the sole judgment of the Issuers, might
materially impair the ability of the Issuers to proceed with the Exchange
Offer or materially impair the contemplated benefits of the Exchange Offer
to the Issuers; or
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(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the sole judgment of the Issuers, might
materially impair the ability of the Issuers to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Issuers; or
(d) there shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on the New
York Stock Exchange (whether or not mandatory), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory), (iii) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States, (iv) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting,
the extension of credit by banks or other lending institutions in the United
States, or (v) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offer, a material acceleration or worsening
thereof.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to such
conditions or may be waived by the Issuers in whole or in part at any time and
from time to time in their sole discretion. If the Issuers waive or amend the
foregoing conditions, the Issuers will, if required by applicable law, extend
the Exchange Offer for a minimum of five business days from the date that the
Issuers first give notice, by public announcement or otherwise, of such waiver
or amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Issuers concerning the events
described above will be final and binding upon all parties.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Issuers. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telecopy, telephone or in person by officers and regular employees of
the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Issuers may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
exchange. The Issuers will pay the other expenses to be incurred in connection
with the Exchange Offer, including fees and expenses of the Trustee, accounting
and legal fees and printing costs.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Generally, Eligible Holders (other than any holder who is an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
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New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business, and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register the New Notes
prior to offering or selling such New Notes. Upon request by Eligible Holders
prior to the Exchange Offer, the Issuers will register or qualify the New Notes
in certain jurisdictions subject to the conditions in the Registration Rights
Agreement. If an Eligible Holder does not exchange such Old Notes for New Notes
pursuant to the Exchange Offer, such Old Notes will continue to be subject to
the restrictions on transfer contained in the legend thereon and will not have
the benefit of any covenant regarding registration under the Securities Act. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Issuers' accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuers upon the consummation of the Exchange Offer. The expenses of the
Exchange Offer will be amortized by the Issuers over the term of the New Notes
under generally accepted accounting principles.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. All correspondence in connection with the Exchange
Offer and the Letter of Transmittal should be addressed to the Exchange Agent,
as follows:
<TABLE>
<S> <C> <C>
BY HAND OR OVERNIGHT COURIER: BY MAIL: IN PERSON:
(registered or certified
recommended)
Norwest Bank Minnesota, Norwest Bank Minnesota, Northstar East Bldg.
National Association National Association 608 2nd Ave S.
Corporate Trust Operations Corporate Trust Operations 12th Floor
Norwest Center P.O. Box 1517 Corporate Trust Ser.
Sixth and Marquette Minneapolis, MN 55480-1517 Minneapolis, MN
Minneapolis, MN 55479-0113
FACSIMILE NUMBER (FOR ELIGIBLE INSTITUTIONS ONLY):
(612) 667-4927
CONFIRM RECEIPT OF NOTICE
OF GUARANTEED DELIVERY
BY TELEPHONE:
(612) 667-9764
</TABLE>
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
20
<PAGE>
THE ACQUISITION
On May 30, 1996, the Company acquired the assets of the Mill for a purchase
price of $185.0 million for the fixed assets, plus approximately $17.4 million
for working capital, for a total purchase price of $202.4 million, subject to
adjustment for changes in working capital and certain other items subsequent to
June 30, 1995.
The funds required to consummate the Acquisition and pay related transaction
costs consisted of (i) $165.0 million from the proceeds of the Offering, (ii)
$40.0 million of equity contributed by Florida Coast Holding and (iii) a $10.0
million Subordinated Note of the Company issued to St. Joe pursuant to the
Acquisition Agreement. The Subordinated Note bears interest at a rate of 1/2%
higher than the interest rate on the Notes, and matures in 2004. At the
Company's option, interest on the Subordinated Note may be added to principal of
the Subordinated Note rather than paid in cash. The Subordinated Note contains
covenants similar to those contained in the Indenture.
Concurrently with the Acquisition and pursuant to the Acquisition Agreement,
Four M acquired substantially all of the assets of St. Joe Container (the
"Container Properties") for a purchase price of $87.8 million for the fixed
assets, plus approximately $69.7 million for working capital, for a total
purchase price of $157.5 million, subject to adjustment for changes in working
capital and certain other items subsequent to June 30, 1995 (the "Four M
Acquisition").
The Acquisition Agreement contained customary representations, warranties
and covenants. The Company, on the one hand, and St. Joe and St. Joe Paper, on
the other hand, have also agreed to indemnify one another and their respective
affiliates for breaches of representations and warranties contained in the
Acquisition Agreement, PROVIDED that claims with respect thereto (other than
environmental claims) are asserted on or before September 30, 1997. In addition,
pursuant to the terms of the Acquisition Agreement, St. Joe and St. Joe Paper
have agreed to indemnify and reimburse the Company and its affiliates for all
losses arising from breaches of covenants and agreements in the Acquisition
Agreement, all retained liabilities, liens other than permitted liens and
certain other matters as specified in the Acquisition Agreement. In turn, the
Company and its affiliates have agreed to indemnify and reimburse St. Joe and
its affiliates for all losses arising from breaches of covenants and agreements
of the Company in the Acquisition Agreement and all assumed liabilities and
certain other matters as specified in the Acquisition Agreement. There are no
dollar limitations as to the foregoing indemnification obligations of St. Joe,
St. Joe Paper and the Company.
The Paper Indemnitors have agreed to indemnify the Company and Four M, to
the extent permissible by law, for on-site environmental claims arising from the
operations of the Mill and the Container Properties prior to the consummation of
the Acquisition up to a maximum of $10.0 million of the first $17.5 million,
subject to certain exceptions and limitations. The Company and Four M will be
required to fund $7.5 million of the first $17.5 million of any such costs, and
any costs in excess of $17.5 million will not be indemnified by the Paper
Indemnitors. In addition, the Paper Indemnitors have agreed to indemnify the
Company for $1.0 million of the first $2.0 million of costs associated with
historical black liquor spills at the Mill, subject to certain limitations. The
obligation of the Paper Indemnitors with respect to on-site environmental
liabilities will terminate in the event the Company or Four M is subject to a
"change of control" (as defined in the Acquisition Agreement). Pursuant to an
Indemnification Reimbursement Agreement between the Company and Four M (the
"Indemnification Reimbursement Agreement"), the obligations of the Paper
Indemnitors with respect to such environmental liabilities will be allocated 80%
to the Company and 20% to Four M, with the Company or Four M being obligated,
under certain circumstances, to reimburse the other in the event either recovers
more than its allocated percentage share and the other recovers less. See
"Business--Environmental Matters."
On May 30, 1996, the Company and St. Joe Land entered into the Fiber
Agreement, pursuant to which St. Joe Land agreed to supply pulpwood and wood
chips to the Company for an initial term of 15 years based on prices published
in TIMBER MART SOUTH, an industry trade publication, subject to adjustment for
changes in market conditions. The Company believes that such prices are no less
favorable to the Company than would be obtainable in the open market. During the
first year of the Fiber Agreement, St. Joe Land is expected to meet
approximately 87% of the Company's wood fiber needs and will reduce its fiber
supply to the Company
21
<PAGE>
to approximately one-half of the Company's current needs by the fourth year of
the term of the Fiber Agreement. In addition, St. Joe Land will supply biomass
fuel (scrub wood, bark and timber wastes) to the Company during the first year
of the Fiber Agreement and, at the Company's option, each year thereafter at
prices no less favorable to the Company than would be offered to unrelated third
parties.
On May 30, 1996, the Company also entered into certain agreements with Stone
and Four M. Pursuant to the Output Purchase Agreement, Stone and Four M have
each agreed to purchase from the Company one-half of the Mill's entire
linerboard production at a price that is $25 per ton below the price of such
product published in PULP & PAPER WEEK, an industry trade publication, under the
section entitled "Price Watch: Paper and Paperboard," subject to a minimum
purchase price, which minimum purchase price is intended to generate sufficient
funds to cover cash operating costs, cash interest expense and maintenance
capital expenditures. The Company must also use its best efforts to operate the
Mill at a production rate not less than the average capacity utilization rate of
domestic linerboard producers. Pursuant to the Stone Procurement Agreement,
Stone has agreed to use its best efforts to procure wood fiber on behalf of the
Company for a fee equal to the costs and expenses incurred by Stone in
connection with such efforts and may not be terminated without the consent of a
majority of the outstanding principal amount of the Notes. In addition, Stone
will manage the Company's wood procurement effort.
Pursuant to the Subordinated Credit Facility, Stone and Four M have each
agreed to provide the Company with up to $10.0 million of subordinated
indebtedness, if needed, on a revolving credit basis for general corporate
purposes. The Subordinated Credit Facility expires 90 days after the maturity of
the Notes, and each loan to be made under such facility will bear interest at a
rate equal to the applicable LIBOR, plus 3 5/8% per annum. The obligations under
the Subordinated Credit Facility are unsecured and subordinated to the Notes.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 as adjusted to give effect to the Acquisition and the financings
therefor. This table should be read in conjunction with the other financial
information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-------------
<S> <C>
Long-term debt:
Notes............................................................................................ $ 165,000
Subordinated Note................................................................................ 10,000
-------------
Total long-term debt........................................................................... 175,000
Members' equity.................................................................................... 40,000
-------------
Total capitalization......................................................................... $ 215,000
-------------
-------------
</TABLE>
23
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data (except tons produced) are derived
from the audited financial statements of St. Joe Forest Products
Company--Linerboard Mill Operations, for each of the years in the four-year
period ended December 31, 1995 and the unaudited financial statements of St. Joe
Forest Products Company--Linerboard Mill Operations as of December 31, 1991 and
March 31, 1996 and for the year ended December 31, 1991 and the three months
ended March 31, 1995 and 1996, all of which, except for the years ended December
31, 1991 and 1992, are included elsewhere herein. The following selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 170,928 $ 167,132 $ 153,005 $ 192,886 $ 239,165 $ 62,375 $ 49,759
Cost of sales.......................... 151,639 157,229 167,247 183,800 180,788 47,331 45,106
Selling, general and administrative
expenses.............................. 2,999 3,382 4,199 3,077 4,672 800 766
--------- --------- --------- --------- --------- --------- ---------
Operating profit (loss)............ 16,290 6,521 (18,441) 6,009 53,705 14,244 3,887
--------- --------- --------- --------- --------- --------- ---------
Other income:
Interest income...................... 653 84 97 383 962 355 --
Other, net........................... 84 29 430 227 95 33 122
--------- --------- --------- --------- --------- --------- ---------
Total other income................. 737 113 527 610 1,057 388 122
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle.................. 17,027 6,634 (17,914) 6,619 54,762 14,632 4,009
Provision (benefit) for income taxes... 3,850 2,392 (5,871) 2,453 20,294 5,423 1,486
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle..... $ 13,177 $ 4,242 $ (12,043) $ 4,166 $ 34,468 $ 9,209 $ 2,523
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA (1)............................. $ 35,644 $ 29,074 $ 6,010 $ 29,687 $ 77,759 $ 20,164 $ 10,128
Depreciation........................... 19,354 22,553 24,451 23,678 24,054 5,920 6,241
Capital expenditures................... 37,078 37,160 13,381 8,321 22,457 3,140 2,486
Tons produced.......................... 433,352 425,087 444,006 477,990 441,229 123,292 109,056
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH
AS OF DECEMBER 31, 31,
----------------------------------------------------- -----------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 14,776 $ 8,662 $ 14,059 $ 28,016 $ 13,868 $ 20,346
Property, plant and equipment, net.............. 182,841 197,448 186,378 171,021 169,424 165,669
Total assets.................................... 202,233 215,910 210,571 209,813 194,448 193,004
Total stockholder's equity...................... 165,423 171,250 167,486 163,218 147,360 150,183
</TABLE>
- ------------------------------
(1) EBITDA is defined as operating profit (loss) plus depreciation and
amortization, if any. EBITDA is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from continuing operations, or other income or cash flow
data prepared in accordance with generally accepted accounting principles or
as a measure of a company's profitability or liquidity.
24
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data as of March 31, 1996 and
for the twelve months ended December 31, 1995 and the three months ended March
31, 1996 (the "Unaudited Pro Forma Financial Statements") are derived from the
financial statements of St. Joe Forest Products Company--Linerboard Mill
Operations as of March 31, 1996 and for the twelve months ended December 31,
1995 and the three months ended March 31, 1996. The pro forma adjustments are
based upon available information and certain assumptions that the Company
believes are reasonable. The Unaudited Pro Forma Financial Statements should be
read in conjunction with "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of St. Joe Forest Products Company-- Linerboard Mill Operations and the notes
thereto included elsewhere in this Prospectus.
The Unaudited Pro Forma Financial Statements give effect to the following
transactions as if they had occurred on January 1, 1995 with respect to the
unaudited pro forma statements of operations, and on March 31, 1996 with respect
to the unaudited pro forma balance sheet:
(a) the Acquisition, pursuant to which the Company acquired the assets
of the Mill for a purchase price of $185.0 million for the fixed assets,
plus approximately $17.4 million for working capital, subject to adjustment
for changes in working capital and certain other items subsequent to June
30, 1995. At March 31, 1996, net working capital for purposes of the
purchase price adjustment totaled $25.7 million;
(b) the Output Purchase Agreement, pursuant to which each of the Joint
Venture Partners has agreed to purchase from the Company one-half of the
Mill's entire linerboard production at a price that is $25 per ton below the
price of such product published in PULP & PAPER WEEK, an industry trade
publication, subject to a minimum purchase price; and
(c) the Fiber Agreement, pursuant to which St. Joe Land will supply a
specified quantity of pulpwood and wood chips to the Company based on prices
published in TIMBER MART SOUTH, an industry trade publication, subject to
adjustment for changes in market conditions.
The Unaudited Pro Forma Financial Statements are presented for illustrative
purposes only and therefore, are not necessarily indicative of the operating
results and financial position that might have been achieved had such
transactions occurred as of an earlier date, nor are they necessarily indicative
of operating results and financial position that may occur in the future.
The Acquisition was accounted for under the purchase method of accounting.
The total purchase price for the Acquisition will be allocated to the assets and
liabilities acquired based upon their relative fair values on May 30, 1996. Such
values are based upon analyses which are not yet complete, and the allocation of
the purchase price reflected herein is subject to revision when additional
information from the valuations and studies becomes available. The Company does
not expect that the effects of the final allocation will differ materially from
those set forth herein.
In addition to the pro forma adjustments reflected herein, the Company
believes that it will be able to achieve additional cost savings following the
Acquisition, particularly in the areas of raw materials, labor and energy costs.
These potential cost savings are not reflected in the Unaudited Pro Forma
Financial Statements.
25
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------------ ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ -- $ 5,068(a) $ 5,068
Accounts receivable................................................ 10,629 -- 10,629
Inventories, net................................................... 15,635 2,761(b) 18,396
Other assets....................................................... 1,071 (1,071)(c) --
------------ ------------ -----------
Total current assets........................................... 27,335 6,758 34,093
Property, plant and equipment, net................................. 165,669 22,301(b) 187,970
Deferred issuance cost............................................. -- 7,500(d) 7,500
------------ ------------ -----------
Total assets................................................... $ 193,004 $ 36,559 $ 229,563
------------ ------------ -----------
------------ ------------ -----------
Current liabilities:
Accounts payable................................................... $ 3,328 $ -- $ 3,328
Accrued liabilities................................................ 1,605 375(c) 10,235
8,255(e)
Accrued reserves................................................... 2,056 (2,056)(c) --
------------ ------------ -----------
Total current liabilities...................................... 6,989 6,574 13,563
Long-term debt:
Notes.............................................................. -- 165,000(f) 165,000
Subordinated Note.................................................. -- 10,000(f) 10,000
------------ ------------ -----------
Total long-term debt........................................... -- 175,000 175,000
Accrued reserves................................................... 2,379 (1,379)(c) 1,000
Deferred income taxes.............................................. 33,453 (33,453)(c) --
------------ ------------ -----------
Total liabilities.............................................. 42,821 146,742 189,563
Stockholder's equity............................................... 150,183 (150,183)(g) --
Members' equity.................................................... -- 40,000(g) 40,000
------------ ------------ -----------
Total liabilities and equity................................... $ 193,004 $ 36,559 $ 229,563
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Balance Sheet
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects excess cash of $5,068 resulting from the Acquisition to be used for
general corporate purposes.
(b) The Acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations,"
pursuant to which the purchase price will be allocated to the acquired
assets and liabilities based upon their relative fair values as of the
closing date.
The following table sets forth the Company's preliminary allocation of the
purchase price of the Acquisition:
<TABLE>
<S> <C>
Accounts receivable....................................................... $ 10,629
Inventories, net.......................................................... 18,396
Property, plant and equipment, net........................................ 187,970
Accounts payable.......................................................... (3,328)
Current accrued liabilities............................................... (1,980)
Accrued reserves.......................................................... (1,000)
---------
$ 210,687
---------
---------
</TABLE>
(c) Reflects the elimination of assets and liabilities of the Mill that were
excluded in the Acquisition as follows:
<TABLE>
<S> <C>
Other assets.............................................................. $ 1,071
Current accrued liabilities............................................... (1,413)
Current accrued reserves.................................................. (2,056)
Accrued reserves.......................................................... (1,379)
Deferred income taxes..................................................... (33,453)
---------
Net liabilities excluded................................................ $ (37,230)
---------
---------
</TABLE>
(d) Reflects deferred issuance costs of $7,500 in connection with the
Acquisition.
(e) The Acquisition Agreement contemplates a post closing adjustment to adjust
for actual working capital acquired at Closing. The unaudited pro forma
balance sheet reflects the acquisition of working capital at March 31, 1996,
which results in an assumed purchase price adjustment of $8,255 which is
reflected as a current liability in the unaudited pro forma balance sheet.
The working capital adjustment will be settled within 45 days of the
Closing.
(f) Reflects the financing of the Acquisition as follows:
<TABLE>
<S> <C>
Notes..................................................................... $165,000
Subordinated Note......................................................... 10,000
---------
$175,000
---------
---------
</TABLE>
(g) Reflects the elimination of St. Joe's equity and the $40,000 equity
contribution from Florida Coast Holding.
27
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
--------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................................. $ 49,759 $ (594)(a) $ 49,165
Cost of sales............................................................. 45,106 (2,415)(b) 42,691
Selling, general and administrative expenses.............................. 766 (60)(c) 706
--------- ----------- -----------
Operating profit...................................................... 3,887 1,881 5,768
--------- ----------- -----------
Interest income........................................................... -- -- --
Interest expense.......................................................... -- 5,859(d) 5,859
Other income, net......................................................... 122 -- 122
--------- ----------- -----------
Income before income taxes................................................ 4,009 (3,978) 31
Provision for income taxes................................................ 1,486 (1,484)(e) 2
--------- ----------- -----------
Net income............................................................ $ 2,523 $ (2,494) $ 29
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Statement of Operations.
28
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
---------- ------------ -----------
<S> <C> <C> <C>
Net sales............................................................... $ 239,165 $ (8,485)(a) $ 230,680
Cost of sales........................................................... 180,788 (6,319)(b) 174,469
Selling, general and administrative expenses............................ 4,672 (307)(c) 4,365
---------- ------------ -----------
Operating profit.................................................... 53,705 (1,859) 51,846
Interest income......................................................... 962 -- 962
Interest expense........................................................ -- 23,502(d) 23,502
Other income, net....................................................... 95 -- 95
---------- ------------ -----------
Income before income taxes.............................................. 54,762 (25,361) 29,401
Provision for income taxes.............................................. 20,294 (18,677)(e) 1,617
---------- ------------ -----------
Net income.......................................................... $ 34,468 $ (6,684) $ 27,784
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
See accompanying notes to the Unaudited Pro Forma Statement of Operations
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER TON DATA)
(a) Reflects reduced net unit sales prices and increased sales volumes to give
effect to the Output Purchase Agreement. Historically, the Mill sold a
majority of its linerboard production to St. Joe Container at prices equal
to the prices reported in PULP & PAPER WEEK. Pursuant to the Output Purchase
Agreement, the Joint Venture Partners have committed to purchase the Mill's
entire linerboard production at a price that is $25 per ton below the price
reported in PULP & PAPER WEEK subject to a minimum purchase price, which
minimum purchase price is intended to generate sufficient funds to cover
cash operating costs, cash interest expense and maintenance capital
expenditures. See "The Acquisition."
(b) Reflects decreased depreciation of $15,182 and $4,023 for the year ended
December 31, 1995 and for
the three-month period ended March 31, 1996, respectively, based upon the
preliminary allocation of the purchase price of the Acquisition, the
adoption of a straight-line depreciation method compared to an accelerated
method used in the historical financial statements, and a change in the
estimated useful lives of the property, plant and equipment, partially
offset by (i) increased wood fiber costs of $5,029 and $0, for the year
ended December 31, 1995 and for the three-month period ended March 31, 1996,
respectively, to give effect to the Fiber Agreement (see "The Acquisition"),
(ii) increased costs of $2,013 and $1,153 for the year ended December 31,
1995 and for the three-month period ended March 31, 1996, respectively, to
reflect increased sales volume resulting from the Joint Venture Partners'
purchase commitment pursuant to the Output Purchase Agreement, (iii)
increased costs of $896 and $224 for the year ended December 31, 1995 and
for the three-month period ended March 31, 1996, respectively, for providing
benefits for hourly employees at the Mill and (iv) increased insurance costs
of $925 and $231 for the year ended December 31, 1995 and for the
three-month period ended March 31, 1996, respectively, at the Mill. Because
the Company will be a stand-alone entity following the Acquisition, the
Company believes that employee benefits and insurance costs will be higher
than those allocated to the Mill by St. Joe. For purposes of the pro forma
calculation, machinery and equipment have been depreciated over a 20-year
estimated useful life.
Although wood fiber costs will be higher under the Fiber Agreement than the
Mill's historical costs, the Company believes that it will be able to
achieve efficiencies in wood fiber consumption due to the higher quality
wood fiber required under the Fiber Agreement. These efficiencies have not
been reflected in the unaudited pro forma statement of operations.
(c) Reflects the elimination of the Mill's sales department which no longer will
be necessary as a result of the Output Purchase Agreement.
(d) Reflects increased interest expense resulting from the pro forma
capitalization of the Company as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------- -------------
<S> <C> <C>
Notes at 12 3/4%.......................................................... $ 21,038 $ 5,260
Subordinated Note at 13 1/4%.............................................. 1,392 331
Amortization of deferred issuance costs................................... 1,072 268
------------- ------
$ 23,502 $ 5,859
------------- ------
------------- ------
</TABLE>
(e) Reflects the cumulative state income tax effect of the pro forma
adjustments. As a limited liability company, the Company's results of
operations will be included in the federal income tax returns of its members
and, accordingly, no provision for federal income taxes is included in the
unaudited pro forma statement of operations. The Company intends to make
distributions to its members to permit the members to satisfy their income
tax liability as a result of their ownership of the Company.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
financial statements of St. Joe Forest Products Company--Linerboard Mill
Operations and the notes thereto included elsewhere in this Prospectus.
The linerboard market is highly cyclical and sensitive to changes in
industry capacity and economic conditions, which in turn, will impact the
selling prices for the Company's products. Selling prices for the Mill's
products have historically been the primary determinant of the Mill's financial
performance and, in the last three years, the Mill's financial performance has
significantly improved as a result of such price increases. Recently, prices for
the Mill's products have declined as a result of increased capacity in the
industry and decreased demand for such products. Consequently, in December 1995
and January 1996, one of the Mill's paper machines was temporarily shut down for
maintenance and to decrease excess inventory. In order to prevent excessive
increases in inventory, the Mill experienced further downtime of both of its
paper machines from April 7, 1996 through May 6, 1996.
Pursuant to the Output Purchase Agreement, each of the Joint Venture
Partners will purchase from the Company one-half of the Mill's entire linerboard
production at a price that is $25 per ton below the price of such product
published in PULP & PAPER WEEK, an industry trade publication, under the section
entitled "Price Watch: Paper and Paperboard," subject to a minimum purchase
price, which minimum purchase price is intended to generate sufficient funds to
cover cash operations costs, cash interest expense and maintenance capital
expenditures. The Company must also use its best efforts to operate the Mill at
a production rate not less than the average capacity utilization rate of
domestic linerboard producers.
The Mill's results of operations are also affected by the costs of
production. Because of the high fixed costs involved in operating the Mill, the
continuous and efficient operation of the Mill at or near capacity significantly
reduces the production cost per ton of linerboard and in turn, increases the
profitability of the Mill.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
-------------------------------------------------------------------------------- --------------------------
1993 1994 1995 1995
------------------------ -------------------------- -------------------------- --------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
----------- ----------- ----------- ------------- ----------- ------------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $ 153.0 100.0% $ 192.9 100.0% $ 239.2 100.0% $ 62.3 100.0%
Cost of sales........ 167.2 109.3 183.8 95.3 180.8 75.6 47.3 75.9
Selling, general and
administrative
expenses............ 4.2 2.7 3.1 1.6 4.7 1.9 0.8 1.3
Other income......... 0.5 0.3 0.6 0.3 1.1 0.4 0.4 0.6
----------- ----------- ----------- ----- ----------- ----- ----------- -----
Income (loss) before
income taxes and
cumulative effect
for change in
accounting
principle........... (17.9) (11.7) 6.6 3.4 54.8 22.9 14.6 23.4
Provision (benefit)
for income taxes.... (10.9)(1) (7.1) 2.4 1.3 20.3 8.5 5.4 8.6
----------- ----------- ----------- ----- ----------- ----- ----------- -----
Net income (loss).... $ (7.0) (4.6)% $ 4.2 2.1% $ 34.5 14.4% 9.2 14.8
----------- ----------- ----------- ----- ----------- ----- ----------- -----
----------- ----------- ----------- ----- ----------- ----- ----------- -----
<CAPTION>
1996
--------------------------
PERCENT OF
AMOUNT NET SALES
----------- -------------
<S> <C> <C>
Net sales............ $ 49.8 100.0%
Cost of sales........ 45.1 90.0
Selling, general and
administrative
expenses............ 0.8 1.5
Other income......... 0.1 0.2
----------- -----
Income (loss) before
income taxes and
cumulative effect
for change in
accounting
principle........... 4.0 8.1
Provision (benefit)
for income taxes.... 1.5 3.0
----------- -----
Net income (loss).... 2.5 5.1
----------- -----
----------- -----
</TABLE>
- ------------------------
(1) Includes a $5.0 million credit resulting from the adoption of SFAS 109. See
Note 3 to the financial statements of St. Joe Forest Products
Company--Linerboard Mill Operations.
31
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Net sales declined $12.6 million, or 20.2%, to $49.8 million for the 1996
Period from $62.4 million for the 1995 Period. This decline was attributable
primarily to a 13.6% decline in sales volume to approximately 105,955 tons for
the 1996 Period from approximately 122,575 tons for the 1995 Period. The decline
in volume was due, in part, to the temporary 10-day shutdown of one of the
Mill's paper machines in January 1996. In addition, average gross selling prices
per ton for unbleached kraft and mottled white linerboard have decreased
approximately 8.1% and increased approximately .5%, respectively.
Cost of sales decreased $2.2 million, or 4.7%, to $45.1 million in the 1996
Period from $47.3 million in the 1995 Period. This decline was primarily due to
the 13.6% decline in sales volumes. In addition, cost of sales as a percentage
of net sales increased to 90.6% in the 1996 Period from 75.9% in the 1995 Period
primarily due to the decreases in selling prices and sales volumes.
The Mill's selling, general and administrative expenses decreased $34,000,
or 4.3%, to $766,000 in the 1996 Period from $800,000 in the 1995 Period.
The Mill's net income decreased to $2.5 million in the 1996 Period from $9.2
million in the 1995 Period.
1995 COMPARED WITH 1994
Net sales increased $46.3 million, or 24.0%, to $239.2 million in 1995 from
$192.9 million in 1994. This increase was attributable to a 35.8% increase in
the average net selling prices for the Mill's products and was offset in part by
a decrease in sales volumes to approximately 435,609 tons in 1995 from
approximately 477,060 tons in 1994. In addition, selling prices began to
decrease in the latter part of 1995. For example, domestic prices for kraft
linerboard increased from $430 per ton in January 1995 to $530 per ton in May
1995 and declined to $505 per ton in December 1995. Furthermore, there was a
shift in the product mix of the Mill. Revenues attributable to sales of mottled
white linerboard decreased in 1995 to 57.5% of gross sales compared to 59.6% of
gross sales in 1994 due to a decline in industry demand.
Cost of sales decreased $3.0 million, or 1.6%, to $180.8 million in 1995
from $183.8 million in 1994. This decline was attributable primarily to an 8.7%
decrease in sales volume. In addition, cost of sales as a percentage of net
sales decreased to 75.6% in 1995 from 95.3% in 1994 primarily due to the 24.0%
increase in net sales despite lower sales volumes. However, cost of goods sold
on a per ton basis increased in 1995 from 1994 primarily due to higher wood
fiber costs.
The Mill's selling, general and administrative expenses increased $1.6
million, or 51.8%, to $4.7 million in 1995 from $3.1 million in 1994 primarily
due to increased reserves for workman's compensation claims.
The Mill's net income increased $30.3 million to $34.5 million in 1995 from
$4.2 million in 1994.
1994 COMPARED WITH 1993
Net sales increased $39.9 million, or 26.1%, to $192.9 million in 1994 from
$153.0 million in 1993. Net sales increased as a result of an 8.8% increase in
sales volume to approximately 477,060 tons in 1994 from approximately 438,295
tons in 1993 and a 15.8% increase in the average net selling prices for the
Mill's products. In addition, the product mix of the Mill changed as revenues
attributable to sales of mottled white linerboard increased in 1994 to 59.6% of
gross sales compared to 54.9% of gross sales in 1993.
Cost of sales increased $16.6 million, or 9.9%, to $183.8 million in 1994
from $167.2 million in 1993. This increase was attributable primarily to the
increase in sales of mottled white linerboard and the higher costs associated
with producing that product. However, cost of sales as a percentage of net sales
decreased from 109.3% in 1993 to 95.3% in 1994 as a result of the 26.1% increase
in net sales based on an 8.8% increase in volume.
The Mill's selling, general and administrative expenses decreased $1.1
million, or 26.7%, to $3.1 million in 1994 from $4.2 million in 1993 primarily
as a result of decreased reserves for workman's compensation claims.
32
<PAGE>
The Mill's net income increased $11.2 million to $4.2 million in 1994 from a
net loss of $7.0 million in 1993.
The Mill recorded an income tax expense of $2.5 million in 1994 as compared
with an income tax benefit of $5.9 million in 1993. The decrease in income tax
benefit reflects the tax effect associated with the pre-tax income in 1994
compared to a pre-tax loss in 1993. St. Joe adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" effective January 1,
1993, and reported the cumulative effect of that change in the method of
accounting for income taxes of $5.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Mill has met its liquidity requirements through cash flows
from operations and intercompany advances from St. Joe Paper. Following the
Acquisition, the Company's principal liquidity requirements are expected to
consist of debt service under the New Notes and funding of capital expenditures.
The Company has outstanding approximately $175.0 million of indebtedness,
consisting of the Notes and the Subordinated Note. Pursuant to the terms of the
Subordinated Note, the Company expects to pay interest in kind on the
Subordinated Note. To the extent the Company borrows funds under the
Subordinated Credit Facility, additional interest and principal payments will be
required.
The Mill's cash provided by operating activities decreased to $2.2 million
in the 1996 Period from $12.1 million in the 1995 Period primarily due to the
decrease in net income and increased working capital requirements. The Mill's
cash provided by operating activities improved in 1995 to $59.2 million as
compared to $29.8 million in 1994. This improvement reflects an increase in net
income to $34.5 million in 1995 from $4.2 million in 1994, which resulted from
increased selling prices for the Mill's products. Cash used in investing
activities decreased to $2.5 million in the 1996 Period from $3.1 million in the
1995 Period as a result of decreased capital expenditures. Cash used in
investing activities increased to $22.5 million in 1995 from $8.3 million in
1994 primarily as a result of increased capital expenditures.
Although there can be no assurances, the Company believes that cash
generated from operations together with amounts available under the Subordinated
Credit Facility will be sufficient to meet its debt service requirements,
capital expenditure needs and working capital needs for the forseeable future.
The Company's future operating performance and ability to service the Notes and
repay other indebtedness of the Company will be subject to future economic
conditions and financial, business and other factors, many of which are not in
the Company's control.
ENVIRONMENTAL MATTERS
The operations of the Mill are subject to extensive and changing
environmental regulation by federal, state and local authorities. St. Joe has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations. The Company expects to make significant
expenditures in the future. The Company has budgeted approximately $2.0 million
for environmental matters in each of 1996 and 1997. The Company anticipates that
a majority of these costs will be capital expenditures related to additional
asbestos removal and disposal and modifications in anticipation of the proposed
"cluster rules." The cluster rules have not been finally adopted and remain
subject to modification. The Company is considering and evaluating the potential
impact of the proposed cluster rules on its operations and capital expenditures
over the next several years. The Company estimates the capital spending that may
be required to comply with a majority of the final regulations could be $27.0
million over a three-year period beginning in 1997 (but could reach as high as
$67.0 million under the currently proposed regulations). If the Company
determines to discontinue the production of mottled white linerboard, the
Company estimates the capital spending that may be required to comply with the
majority of the final regulations could be $5.0 million over a three-year period
beginning in 1997 (but could reach as high as $45.0 million under the currently
proposed regulations). The ultimate financial impact of the regulations on the
Company cannot be accurately estimated at this time but will depend on the
nature of the final regulations, the timing of required implementation and the
cost and availability of new technology. The Company may determine that, under
the final regulations, the costs associated with the production of mottled white
linerboard may be prohibitive and may
33
<PAGE>
discontinue its production. Because of the current higher margins associated
with mottled white linerboard, in the event the Company discontinues the
production of mottled white linerboard, its revenues and profit margins may
decrease. See "Business--Environmental Matters."
Wastewater from the Mill is handled by the City of Port St. Joe Industrial
Wastewater Treatment Plant ("IWTP") under a permit issued by the City of Port
St. Joe ("CPSJ"). The Company will bear the preponderate costs of operating the
IWTP pursuant to an agreement with the IWTP and other industrial users of the
IWTP. The wastewater is discharged from the IWTP into the Gulf County Canal. The
ability of CPSJ to take wastewater from the Company is dependent upon CPSJ
maintaining its National Pollutant Discharge Elimination System permit. CPSJ is
appealing the recent permit issued by the EPA and is objecting to certain
parameters and conditions of the permit. The Company will cooperate with CPSJ
and believes that an unsuccessful appeal would neither impair IWTP's ability to
accept its wastewater nor substantially affect its costs. See
"Business--Environmental Matters."
In addition, based on historical exceedances of state ground water quality
standards, the Florida Department of Environmental Protection (the "DEP") has
asked CPSJ to conduct ground water monitoring in the vicinity of the IWTP.
Pursuant to the agreement with the IWTP and other industrial users, the Company
may bear a share of remedial costs, if any, to address the ground water
contamination. At this time, the Company cannot estimate the likelihood of
remediation or any associated costs, or predict if the cost would have a
material adverse affect on the Company's business or financial condition.
In March 1996, the EPA announced plans to propose a new Clean Air Act
regulation that may impose additional restrictions on the air emissions from
combustion sources at the Mill. Although the EPA is not expected to publish the
rule in proposed form until late 1996, based on the Company's current
understanding of the rule, the Company estimates that it may result in the
incurrence of capital costs of approximately $5.0 million to $10.0 million.
These capital costs are expected to be incurred over a three-year period after
the rule becomes final.
The Company has detected contamination of ground water from historical black
liquor spills on the Mill property. Based on the concentrations detected, the
Company believes that no remediation will be required. In the event remediation
is required, however, the Company estimates that its costs will be approximately
$2.1 million. The potential remediation costs for the black liquor ground water
contamination are subject to limited indemnification by the Paper Indemnitors.
Pursuant to the Acquisition Agreement, the Paper Indemnitors have agreed to
indemnify the Company for certain environmental matters based on activities
prior to the Closing. There can be no assurance that this indemnification will
be sufficient to reimburse the Company for all environmental liabilities. See
"Business--Environmental Matters."
34
<PAGE>
BUSINESS
THE COMPANY
The Company was formed by Stone, the largest producer of linerboard in the
world, and Four M, one of the largest independent converters of corrugated
packaging materials in North America, to acquire the linerboard mill operations
of St. Joe. The Mill, located in Port St. Joe, Florida, is a major manufacturer
of mottled white and unbleached kraft linerboard, the principal component of
corrugated containers and corrugated packaging materials. The Joint Venture
Partners acquired the Mill for its strategic location and to fulfill a portion
of the linerboard requirements of their respective corrugated container
facilities, many of which are located in the Southeast. Pursuant to the Output
Purchase Agreement, each of the Joint Venture Partners has committed to purchase
one-half of the Mill's entire linerboard production.
The Mill has two paper machines which are capable of producing approximately
500,000 tons of linerboard annually in a variety of grades and basis weights.
Since 1990, approximately $147.8 million has been spent for the maintenance and
modernization of the Mill's plant, equipment and machinery and for environmental
compliance. In 1994 and 1995, under the management of St. Joe, the Mill produced
approximately 477,990 and 441,229 tons of linerboard, respectively, operating at
approximately 95.6% and 88.2% of capacity, respectively, during such periods.
The Mill's production is approximately evenly divided between mottled white
linerboard, a premium priced product, and unbleached kraft linerboard.
Stone is a major international pulp and paper company engaged principally in
the production and sale of paper, packaging products, and market pulp. Stone is
the world's largest producer of linerboard and converter of linerboard products
into corrugated containers and paper bags and sacks. Stone believes that it is
one of the world's largest paper companies in terms of annual tonnage, having
produced approximately 8.0 million total tons of paper and pulp in 1995. Stone
produced approximately 5.0 million tons of unbleached linerboard and kraft paper
in 1995, which accounted for approximately 63% of its total tonnage produced for
1995. Stone had net sales of approximately $7.4 billion in 1995. Stone owns or
has an interest in 186 manufacturing facilities in the United States, Canada,
Germany, France, Belgium, the United Kingdom, Venezuela, China and the
Netherlands, including 23 mills. Stone also maintains sales offices in the
United States, Canada, the United Kingdom, Germany, Belgium, France, Mexico,
China and Japan and has a forestry operation in Costa Rica and has a joint
venture relationship in Venezuela.
Four M is one of the largest independent converters of corrugated packaging
materials in North America. Four M sells its products to national, regional and
local accounts, which include companies in the food, household products,
cosmetic, personal care, beverage, pharmaceutical, chemical and high-technology
industries. After giving pro forma effect to the Four M Acquisition, Four M
would have (i) generated approximately $543.4 million in net sales in 1995 and
(ii) sold approximately 10.0 billion square feet of corrugated containers and
partitions in 1995. As a result of the Four M Acquisition, Four M currently
operates 28 converting facilities located in the Mid-Atlantic, Midwest and
Southeast regions of the United States, including 19 integrated corrugating
plants, four corrugated sheet or specialty container plants, and four corrugated
partition plants.
INDUSTRY OVERVIEW
Linerboard and corrugating medium are the principal raw materials used in
the production of corrugated containers. Corrugating medium is fluted and
laminated to linerboard to produce corrugated sheets. Linerboard provides the
strength component of a container while corrugating medium provides rigidity.
Linerboard is manufactured in a wide range of basis weights and grades.
Demand for linerboard is directly related to the level of corrugated
container shipments. Approximately 90% of all industrial and consumer goods
transported in the United States utilize some form of corrugated or solid fiber
container, cushioning or partition. Shipments of corrugated containers have
increased at a compound annual growth rate of approximately 3.0% since 1970.
35
<PAGE>
The United States linerboard industry has a high degree of integration, with
more than 70% of linerboard production transferred to manufacturers' own
converting plants or traded with other manufacturers to save freight costs.
Approximately half of the remaining production is sold to independent domestic
corrugated converters, and the other half is exported.
Linerboard produced in the United States is predominantly unbleached kraft
linerboard. However, demand for products with higher performance characteristics
(lighter basis weights and greater strength) and improved aesthetics (graphics
and color) has increased in the past several years. Demand for bleached
linerboard (mottled white and white-top) currently represents approximately 8%
of the total linerboard market. The premium price commanded by this higher
value-added product results in higher margins for manufacturers of these
products.
Domestic linerboard prices tend to be highly cyclical. Prices usually rise
during the middle and later stages of an economic recovery but fall when demand
weakens and manufacturers compete for business to keep their capital intensive
mills operating at higher utilization rates. Prices tend to be highest when
operating rates are approximately 95% or higher and when inventories at mills
and container plants are at 5.5 weeks of supply or lower. High inventories,
particularly at mills, usually indicate competitive pricing.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
$/TON LINERBOARD PRICE TREND
<S> <C> <C> <C>
Mottled White Unbleached Kraft
1991 1Q 495 350
2Q 495 325
3Q 475 320
4Q 485 350
1992 1Q 495 350
2Q 495 350
3Q 495 340
4Q 495 340
1993 1Q 495 330
2Q 480 295
3Q 475 280
4Q 475 320
1994 1Q 475 320
2Q 505 350
3Q 510 390
4Q 565 430
1995 1Q 620 480
2Q 670 530
3Q 670 530
4Q 650 500
1996 1Q 605 450
</TABLE>
Source: Pulp & Paper Week. Pulp & Paper 1996 North American Factbook
In 1994, linerboard prices increased sharply and near shortage conditions
prevailed by the second half of the year. In the eastern United States, the
price of linerboard (42 lb.) rose from below $300 per ton in the third quarter
of 1993 to approximately $425 per ton by the fourth quarter of 1994, exceeding
the previous peak of approximately $410 per ton in 1988. Linerboard prices rose
through the middle of 1995. In the middle of 1995, corrugated container
shipments began to decrease as manufacturers and retailers trimmed inventory
buildups. As a result of this decrease, linerboard prices began to decrease and
this softening in demand, together with increased linerboard capacity, has had
an adverse impact on linerboard prices and operating rates at mills.
36
<PAGE>
STRATEGY
The Company intends to capitalize on Stone's operating experience to
implement an operating strategy for the Mill that the Company believes will
enable it to increase productivity and profitability. The Company's operating
strategy includes:
- INCREASING LINERBOARD PRODUCTION. The Company believes it will be able to
increase production yields by improving product quality consistency and by
decreasing machine downtime through technology upgrades of its machines.
- IMPROVING OPERATING EFFICIENCY. The Company believes it will be able to
improve operating efficiency by reducing the frequency of grade
changeovers, implementing new operating and training procedures for its
employees and decreasing machine downtime.
- REDUCING COSTS. The Company believes it will be able to reduce costs by
preventive maintenance and process improvements. Through increased
production and improved operating efficiency, the Company believes it can
also lower operating costs per ton. Areas targeted for cost reduction
include raw materials, labor and energy.
THE MILL
The Company's operations consist solely of the Mill which is located on
approximately 80 acres of land in Port St. Joe, Florida. The Mill produces two
types of linerboard, mottled white and unbleached kraft. In 1995, the Mill
produced approximately 227,300 tons of mottled white linerboard and
approximately 214,000 tons of unbleached kraft linerboard, an approximate 8.2%
and 7.1% decrease from 1994, respectively. The Mill's operations consist of a
wood yard, a pulping system, paper machines, and related utility, storage and
transportation facilities. The Mill cuts and chips wood, processes the chipped
wood into pulp and then converts the pulp into linerboard by processing the pulp
through paper machines.
The wood yard consists of (i) facilities for receiving roundwood by truck
and wood chips by both rail and truck, (ii) a roundwood storage pile, (iii) a
wood chip storage area, (iv) equipment for roundwood and wood chip handling, (v)
debarking drums and (vi) a chip screening system. Roundwood is received in 16-20
foot lengths and then processed by feeding them into a debarking drum. After
debarking, the logs are sent through the chipper, screened and then stored in
outdoor storage areas or bins. Purchased wood chips are also stored in outdoor
storage areas or bins.
The Mill operates ten batch digesters and a continuous process digester
which have an aggregate capacity to produce approximately 1,620 tons of pulp per
day. In the pulping process, the wood chips are combined with white liquor and
cooked, producing black liquor and pulp. The pulp is washed, refined, screened,
cleaned, thickened, and stored in tanks. The Mill's bleaching system enables the
Company to produce mottled white linerboard. The bleached pulp system has the
capacity to produce approximately 600 tons per day while the unbleached system
can produce approximately 1,050 tons per day. The Company burns the black liquor
produced during the pulping process in its chemical recovery boiler which
reconstitutes the black liquor into white liquor for reuse in the digesters and
fulfills some of the Mill's energy requirements. See "--Energy Requirements."
The Mill operates two fourdrinier paper machines which convert pulp into
linerboard and have a combined capacity of 1,625 tons per day. After the
linerboard is processed through the paper machine, it is further processed
through a series of dryers which reduce its moisture content. Once dry, the
linerboard is wound into rolls, finished and transported to the linerboard
warehouse on an in-floor conveyor system. The Company's warehouse facilities
adjoin the truck loading area and have the capacity to store up to 10,000 tons,
or about six days production, of linerboard.
PRODUCTS
The Mill produces two types of linerboard, mottled white (a premium priced
product) and unbleached kraft. In 1994 and 1995, approximately 52% of production
in tons was mottled white linerboard. Demand for mottled white linerboard has
increased significantly in recent years. In 1995, mottled white linerboard sold
at
37
<PAGE>
an average of approximately $150 over the price of unbleached linerboard on a
per ton basis. Mottled white linerboard has better printing characteristics than
unbleached linerboard and can be used in point-of-sale displays.
The Mill also produces linerboard in a variety of grades and basis weights.
The following grades were shipped in 1995:
<TABLE>
<CAPTION>
LINERBOARD MILL SHIPMENTS BY PRODUCT--1995
- ---------------------------------------------------------------------
PERCENTAGE OF
PRODUCT TONS SHIPPED SHIPMENTS
- ----------------------------------- ------------ ------------------
<S> <C> <C>
Mottled White
31-38 lb......................... 42,502 10%
42 lb............................ 156,868 36
56 - 69 lb....................... 25,452 6
------------ ---
Total Mottled White................ 224,822 52
------------ ---
Unbleached Kraft
33-38 lb......................... 41,008 9
42 lb............................ 143,853 33
47-69 lb......................... 25,926 6
------------ ---
Total Unbleached Kraft............. 210,787 48
------------ ---
Total............................ 435,609 100%
------------ ---
------------ ---
</TABLE>
MARKETS AND CUSTOMERS
Pursuant to the Output Purchase Agreement, Stone and Four M have each agreed
to purchase one-half of the Mill's entire linerboard production at a price that
is $25 per ton below the price of such product published in PULP & PAPER WEEK,
an industry trade publication, under the section entitled "Price Watch: Paper
and Paperboard," subject to a minimum purchase price, which minimum purchase
price is intended to generate sufficient funds to cover cash operations costs,
cash interest expense and maintenance capital expenditures. The Company must
also use its best efforts to operate the Mill at a production rate not less than
the average capacity utilization rate of domestic linerboard producers. See "The
Acquisition."
Pursuant to the terms of the Output Purchase Agreement, prices for the
Company's linerboard products, which will be based on public market prices, will
depend primarily upon general levels of supply and demand for such products. The
general levels of supply and demand for such products in turn depend upon
general levels of industry capacity, economic activity and the demand for
products which are packaged and shipped in corrugated containers made from
linerboard. Linerboard producers compete for sales with producers of packages
made from plastic or other materials. The demand for foreign sales of linerboard
is influenced by prices and by changes in the capacity of foreign businesses to
manufacture such products.
DISTRIBUTION
The Company is located adjacent to U.S. Highway 98 and near the Apalachicola
Northern Railroad, a 90-mile shortline railroad owned by St. Joe Paper, both of
which provide ready access for transporting linerboard to the Company's
customers.
SUPPLY REQUIREMENTS
The Mill primarily uses pulpwood, wood chips and recycled fiber in the
manufacture of linerboard. Pursuant to the Fiber Agreement, St. Joe Land will
supply pulpwood and wood chips to the Company, and is expected to meet
approximately 87% of its wood fiber needs during the first year of the term of
the Agreement, declining to approximately one-half of its current needs by the
fourth year of the term, based on prices published in TIMBER MART SOUTH, an
industry publication, subject to adjustment for changes in market conditions.
The Company believes that such prices are no less favorable to the Company than
those obtainable in the open market. As St. Joe Land reduces the volume of fiber
being supplied to the Company, the Company anticipates purchasing its raw
materials from various sawmills, chipmills, contract loggers and dealers
throughout a 75-100 mile area surrounding the Mill. Stone will manage the wood
procurement effort
38
<PAGE>
and will procure, on a best efforts basis, additional wood fiber on behalf of
the Company at prices and on terms similar to wood fiber purchases for Stone's
paper mill located in Panama City, Florida. See "The Acquisition."
Approximately 13% of the Mill's pulp requirements were met through the use
of recycled fiber in 1995. Recycled fiber is purchased from corrugated container
plants, supermarket chains and paper stock companies. Prices for recycled fiber
are sensitive to demand fluctuations. The Company believes that the demand for
recycled fiber will increase and expects that the cost of purchasing such fiber
will also increase as a result of this increased demand and market conditions.
The Mill contains an OCC facility which can process up to approximately 28% of
the total fiber needs of the Company.
The Company believes that an adequate supply of fiber will be available to
the Company at competitive prices. The availability of fiber, and its cost, may
be subject to substantial variation, depending upon economic and competitive
factors. The supply of pulpwood and wood chips, in particular, is dependent upon
political, environmental and conservation considerations.
ENERGY REQUIREMENTS
The Mill produces energy primarily from a chemical recovery boiler and a new
combination bark/gas fueled boiler. The Mill's boilers use biomass fuel (scrub
wood, bark and timber wastes) and black liquor solids (a by-product of the wood
pulping process) to meet a substantial percentage of its energy requirements.
The Mill has achieved lower energy costs by using increasing amounts of timber
harvesting and pulp by-products as energy sources. In 1995, fuel oil and natural
gas accounted for approximately 25.7% of the Mill's energy requirements as
compared to approximately 25.9% in 1994. Pursuant to the Fiber Agreement, the
Company must purchase biomass from St. Joe Land during the first year of such
Fiber Agreement and at the Company's option each year thereafter upon prior
written notification to St. Joe Land at prices no less favorable to the Company
than would be offered to unrelated third parties. See "The Acquisition."
ENVIRONMENTAL MATTERS
The Mill's operations and properties are subject to extensive and changing
federal, state and local environmental laws and regulations, including those
requirements that regulate discharges into the environment, waste management and
remediation of environmental contamination. Environmental permits are required
for the operation of the Mill. Such permits are subject to revocation,
modification and renewal. Governmental authorities have the power to enforce
compliance with environmental requirements and violators are subject to fines,
injunctions or both. Third parties may also have the right to sue to enforce
compliance with such regulations. There can be no assurance that material costs
or liabilities will not be incurred by the Company as a result thereof. It is
also possible that other developments, such as the potential for more stringent
requirements of environmental laws and enforcement policies thereunder, could
bring into question the handling, manufacture, use, emission or disposal of
substances or pollutants at linerboard and market pulp mills, including the
Mill. In order to meet changing licensing and regulatory standards, the Company
may be required to make additional site or operational modifications,
potentially involving substantial expenditures, and reduction or suspension of
certain operations.
The Mill believes it is in substantial compliance with current federal,
state and local environmental laws and regulations. St. Joe has in the past made
significant capital expenditures to comply with water, air and solid and
hazardous waste regulations. The Company expects to make significant
expenditures in the future. The Company anticipates that environmental capital
expenditures will be approximately $2.0 million in each of 1996 and 1997.
In November 1993, the EPA announced proposed regulations, known as the
"cluster rules," that would require more stringent controls on air and water
discharges from pulp and paper mills under the Clean Water Act and the Clean Air
Act. In March 1996, the EPA reopened the comment period for certain of the
proposed cluster rule air regulations and proposed additional regulations
regarding air discharges. It is expected that the cluster rules, if adopted as
currently proposed, would require substantial capital expenditures by the
Company, particularly with respect to the production of mottled white
linerboard. Pulp and paper manufacturers have submitted extensive comments to
the EPA on the proposed regulations in support
39
<PAGE>
of the position that requirements under the proposed regulations are
unnecessarily complex, burdensome and environmentally unjustified. It cannot be
predicted at this time whether the EPA will modify the requirements in the final
regulations. Based on information presently available from the EPA, it is
expected that the EPA will promulgate the final cluster rules in 1996. In
addition, the Company anticipates that the earliest time for industry compliance
with certain aspects of the regulations should not be prior to the last quarter
of 1997, and that compliance with the remaining elements will be required by the
end of 1999. The Company is considering and evaluating the potential impact of
the proposed regulations on its operations and capital expenditures over the
next several years. The Company estimates the capital spending that may be
required to comply with a majority of the final regulations could be $27.0
million over a three-year period beginning in 1997 (but could reach as high as
$67.0 million under the currently proposed regulations). If the Company
determines to discontinue the production of mottled white linerboard, the
Company estimates the capital spending that may be required to comply with the
majority of the final regulations could be $5.0 million over a three-year period
beginning in 1997 (but could reach as high as $45.0 million under the currently
proposed regulations). The ultimate financial impact of the regulations on the
Company cannot be accurately estimated at this time but will depend on the
nature of the final regulations, the timing of required implementation and the
cost and availability of new technology.
The Company may determine that under the final regulations the costs
associated with the production of mottled white linerboard may be prohibitive
and may discontinue its production. Because of the higher margins associated
with mottled white linerboard, in the event the Company discontinues the
production of mottled white linerboard, its revenues and profit margins may
decrease.
In addition, the Company may from time to time be subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought.
The Mill has notified the DEP of air emission sources that are not currently
permitted and has received an exemption for these sources until they are
included in the Mill's application for an operating permit under Title V of the
Clean Air Act. The Company does not anticipate that additional permitting
requirements under the Title V program will impose substantial additional costs
on the Company.
Wastewater from the Mill is handled by IWTP under a permit issued by CPSJ.
The Company will bear the preponderate costs of operating the IWTP pursuant to
an agreement with the IWTP and other industrial users of the IWTP. The
wastewater is discharged from the IWTP into the Gulf County Canal. The ability
of CPSJ to take wastewater from the Company is dependent upon CPSJ maintaining
its National Pollutant Discharge Elimination System permit. CPSJ is appealing
the recent permit issued by the EPA and is objecting to certain parameters and
conditions of the permit. The Company will cooperate with CPSJ and believes that
an unsuccessful appeal would not impair IWTP's ability to accept its wastewater
nor substantially affect its costs.
Based on historical exceedances of state ground water quality standards, the
DEP has asked CPSJ to conduct ground water monitoring in the vicinity of the
IWTP. Pursuant to the agreement with the IWTP and other industrial users, the
Company may bear a share of remedial costs, if any, to address the ground water
contamination. At this time, the Company cannot estimate the likelihood of
remediation or any associated costs, or predict if the cost would have a
material adverse affect on the Company's business or financial condition.
In March 1996, the EPA announced plans to propose a new Clean Air Act
regulation that may impose additional restrictions on the air emissions from
combustion sources at the Mill. Although the EPA is not expected to publish the
rule in proposed form until late 1996, based on the Company's current
understanding of the rule, the Company estimates that it may result in the
incurrence of capital costs of approximately $5.0 million to $10.0 million.
These capital costs are expected to be incurred over a three-year period after
the rule becomes final.
The Company has detected contamination of ground water from historical black
liquor spills on the Mill property. Based on the concentrations detected, the
Company believes that no remediation will be required.
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In the event remediation is required, however, the Company estimates that its
costs will be approximately $2.1 million. The potential remediation costs for
the black liquor ground water contamination are subject to limited
indemnification as discussed below.
The environmental indemnification provisions of the Acquisition Agreement
provide, in general terms, that "On-Site Environmental Liabilities" (as defined
in the Acquisition Agreement) arising from conditions existing on the Closing
Date and relating either to the Mill or the Container Properties will be paid as
follows (1) 100% of the first $2.5 million by the Company or Four M, (2) 100% of
the next $2.5 million by the Paper Indemnitors, (3) 100% of the next $2.5
million by the Company or Four M, (4) 100% of the next $2.5 million by the Paper
Indemnitors, (5) 100% of the next $2.5 million by the Company or Four M and (6)
100% of the next $5.0 million by the Paper Indemnitors; PROVIDED that the
conditions that give rise to such On-Site Environmental Liabilities are
discovered and the Paper Indemnitors are notified not later than three years
after the Closing and, subject to certain exceptions, remediation expenses are
incurred within five years after the Closing. The Paper Indemnitors will have no
responsibility to indemnify the Company for expenses relating to On-Site
Environmental Liabilities in excess of $17.5 million in the aggregate or for any
On-Site Environmental Liabilities discovered after the third anniversary of the
Closing Date. In addition to the foregoing, the Paper Indemnitors have agreed to
share the first $2.1 million of expenses to remediate suspected black liquor
spills at the Mill on the following basis: (1) 100% of the first $0.2 million by
the Paper Indemnitors, (2) 100% of the next $0.3 million by the Company, (3)
100% of the next $0.3 million by the Paper Indemnitors, (4) 100% of the next
$0.3 million by the Company, (5) 100% of the next $0.5 million by the Paper
Indemnitors, and (6) 100% of the next $0.5 million by the Company. Any expenses
in excess of $2.1 million would be shared as provided in the first sentence of
this paragraph. The Company is solely responsible for On-Site Environmental
Liabilities that arise from the acts or omissions of the Company after the
Closing Date. In the event On-Site Environmental Liabilities arise from acts or
omissions that occurred both before and after the Closing Date, such Liabilities
will be allocated between St. Joe Paper and St. Joe, on the one hand, and the
Company and Four M, on the other hand, based on the relative contribution of the
acts and omissions occurring in each time period to such On-Site Environmental
Liabilities. St. Joe Paper and its affiliates, including St. Joe, have retained
responsibility for all "Off-Site Environmental Liabilities" (as defined in the
Acquisition Agreement). In the event Off-Site Environmental Liabilities arise
from acts or omissions that occurred both before and after the Closing Date,
such Liabilities will be allocated between St. Joe Paper and St. Joe, on the one
hand, and the Company and Four M, on the other hand, based on the relative
contribution of the acts and omissions occurring in each time period to such
Off-Site Environmental Liabilities. Should a condition exist that requires
remediation costs to be incurred both within and without the boundaries of the
real property, the costs for work within the boundaries will be deemed On-Site
Environmental Liabilities, and the work outside such boundaries will be deemed
Off-Site Environmental Liabilities. Subject to certain exceptions, On-Site
Environmental Liabilities do not include any such liabilities that arise due to
a change in any law or regulation becoming effective after November 1, 1995.
As between the Company and Four M, the obligations of the Paper Indemnitors
with respect to such environmental liabilities shall be allocated 80% to the
Company and 20% to Four M, with the Company or Four M being obligated, under
certain circumstances, to reimburse the other in the event either recovers more
than its allocated percentage share and the other recovers less.
The obligations of the Paper Indemnitors with respect to On-Site
Environmental Liabilities shall terminate in the event that either the Company
or Four M is subject to a "Change of Control" (as defined in the Acquisition
Agreement). Change of Control is defined to mean (i) a transaction in which any
Person or Group (as defined in Rule 13d-5 of the Exchange Act) other than the
"Principals" (as defined in the Acquisition Agreement) or the "Lenders" (as
defined in the Acquisition Agreement) acquires more than 50% of the total voting
power of all classes of voting member interests of the Company or voting stock
of Four M, as the case may be, (ii) a transaction in which any Person or Group
(as defined in Rule 13d-5 of the Exchange Act) other than the Principals or the
Lenders has a sufficient number of nominees elected as shall constitute a
majority of the members of the Management Oversight Committee (as defined
herein) of the Company or the Board of Directors of Four M, as the case may be,
(iii) the sale of all or substantially all of the member interests of the
Company or capital stock of Four M, as the case may be, as an entirety or
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substantially as an entirety to any Person or Group (as defined in Rule 13d-5 of
the Exchange Act) other than the Principals or the Lenders and (iv) the sale or
transfer of all or substantially all of the assets of the Company or Four M, as
the case may be, as an entirety or substantially as an entirety to any Person
other than the Principals or the Lenders. For purposes of the definition of
Change of Control, "Principals" is defined as (1) Dennis Mehiel in the case of
Four M, (2) Four M and Stone, in the case of the Company, and (3) any Subsidiary
of Dennis Mehiel, Four M or Stone, and "Lenders" is defined as one or more
institutional lenders which provide debt financing to the Company or Four M as
of the Closing Date in connection with the Acquisition.
The indemnification provisions in the Acquisition Agreement are generally
intended to be the exclusive remedies of the parties with respect to such
agreements.
LEGAL PROCEEDINGS
From time to time, St. Joe has been subject to legal proceedings and other
claims arising in the ordinary course of business of the Mill. The Company
maintains insurance coverage against claims in an amount which it believes to be
adequate.
PROPERTIES
The Company owns approximately 80 acres of land near Port St. Joe, Florida
on which the Mill is located. As security for the Notes, the Company has granted
the Trustee a mortgage on all of its real property and the improvements thereon.
See "Description of New Notes--Security."
The Company leased to Four M on a net lease basis a certain building located
on its property for a nominal base rent per year.
EMPLOYEES
As of June 30, 1996, the Mill had approximately 643 employees. Of such
employees, three were engaged in administrative functions, three were engaged in
sales and marketing, 14 were engaged in accounting, purchasing, personnel and
security, 413 were engaged in operations and 210 were engaged in maintenance.
One hundred and sixteen employees were salaried employees and 527 employees were
paid on an hourly basis. Management believes that its employee relations are
good.
The hourly employees of the Company are represented by three international
unions: the United Paperworkers International Union--Local 379, the
International Brotherhood of Electrical Workers-- Local 875 and the
International Association of Machinist and Aerospace Workers--Local 435. Since
the Company has not assumed St. Joe's obligations under such collective
bargaining agreements, the Company must negotiate new collective bargaining
agreements covering such employees. There can be no assurance that the Company
will be successful in renegotiating collective bargaining agreements relating to
the employees at the Mill, or that the Company will not incur increased costs as
a result of such negotiations. In addition, an extended interruption of
operations at the Mill could have a material adverse effect on the Company's
financial condition and results of operations.
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MANAGEMENT
The following table sets forth certain information regarding the Company's
executive officers and members of the Company's Management Oversight Committee,
each of whom has served in the capacity set forth below since the Company's
inception.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- --------------------------------------------------------
<S> <C> <C>
Harold D. Wright 58 Chairman and Committee Member
Clinton G. Ames 73 President
Green Long 46 Chief Financial Officer and Treasurer
Roger W. Stone 61 Committee Member
Arnold F. Brookstone 66 Committee Member
Dennis Mehiel 54 Committee Member
Chris Mehiel 56 Committee Member
Timothy D. McMillin 53 Committee Member
</TABLE>
HAROLD D. WRIGHT has been Senior Vice President and General Manager of
Stone's North American Containerboard, Paper and Pulp division since January
1996. From 1991 to January 1996, he served as Vice President of Stone's U.S.
Mill division. Mr. Wright has held various management positions in the
containerboard and paper industry for more than 30 years.
CLINTON G. AMES has been a Director of Four M since 1992 and has been Chief
Executive Officer of Four M Paper Corporation, a subsidiary of Four M which
operates a corrugating medium mill, since July 1995. From April 1994 through
July 1995, Mr. Ames served as Four M's President, Chief Executive Officer and
Chief Operating Officer. From 1990 to 1994, he served as the Chief Executive
Officer of The Fonda Group, Inc. ("Fonda"), a subsidiary of Four M. From 1988 to
1990, Mr. Ames served as a consultant to Four M. Prior to joining Four M, Mr.
Ames was with Inland Container Corporation for 19 years, commencing in 1968. In
1974, he became Inland's President and, in 1978, its Chief Executive Officer and
Chairman, positions he held until he retired from Inland in 1987. Mr. Ames is
also a Director of Bell Packaging Corporation.
GREEN LONG has served as Controller of Stone's Hodge Mill since 1984. Mr.
Long has been involved in the financial management of pulp and paper mills for
more than 20 years.
ROGER W. STONE has been the Chairman, President and Chief Executive Officer
of Stone since 1979. He is also a Director of McDonald's Corporation, Morton
International, Inc., Stone-Consolidated Corporation, Option Care, Inc. and
Continere Corporation.
ARNOLD F. BROOKSTONE retired from Stone in January 1996; he is now a
consultant to Stone. Mr. Brookstone is a director of Stone-Consolidated
Corporation, Donnelly Corporation, MFRI, Inc., Rembrandt Funds and Continere
Corporation.
DENNIS MEHIEL, a co-founder of Four M, has been the Chairman and Chief
Executive Officer of Four M since 1977, except during a leave of absence from
April 1, 1994 through July 1995. Mr. Mehiel is also the Chairman of Fonda and
the MannKraft Corporation, a corrugated container manufacturer.
CHRIS MEHIEL, a co-founder of Four M and the brother of Dennis Mehiel, has
been Executive Vice President, Chief Operating Officer and a Director of Four M
since September 1995. Mr. Mehiel was President of Fibre Marketing Group, Inc., a
waste paper recovery business which he co-founded, from 1994 to January 1996. He
is the President of the managing member of Fibre Marketing Group, LLC, the
successor to Fibre Marketing Group, Inc. From 1993 to 1994, Mr. Mehiel served as
President and Chief Operating Officer of MannKraft Corporation. From 1982 to
1992, Mr. Mehiel served as the President and Chief Operating Officer of
Specialty Industries, Inc., a waste paper processing and box manufacturing
company.
TIMOTHY D. MCMILLIN has been a Director of Four M since 1983 and Senior Vice
President and Chief Financial Officer of Four M since September 1995. From
November 1994 to September 1995, he was Chairman of Executive Advisors, Inc., a
consulting firm specializing in financial restructuring. From 1991 to 1994, Mr.
McMillin was an independent strategic and financial consultant. Mr. McMillin
spent over 25 years
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in the financial services industry and served in various capacities, including
Executive Vice President, at Maryland National Bank from 1965 to 1990. Mr.
McMillin is a Director of EIL Instruments, Inc., a manufacturer and distributor
of testing, measurement and energy control systems.
EXECUTIVE COMPENSATION
No executive officer of the Company was paid any compensation by the Company
during 1995. The terms of the Company's executive compensation are still being
formulated and will be subject to negotiation with the Company's executive
officers. The Company does not at this time contemplate that any of its
executives will be provided with stock options, restricted stock, stock
appreciation rights, phantom stock or similar equity benefits.
44
<PAGE>
SECURITY OWNERSHIP
Each of Stone, through its wholly owned subsidiary SSJ Corporation, and Four
M, through its wholly owned subsidiary Box USA Paper Corporation, beneficially
own 50% of the membership interests of the Company. Each of SSJ Corporation and
Box USA Paper Corporation owns 50% of the membership interests of Florida Coast
Holding, which, in turn, owns a 99% membership interest in the Company. Florida
Coast Paper Corporation, a wholly owned subsidiary of Florida Coast Holding,
owns a 1% interest in the Company. The membership interests in the Company have
been pledged to Stone as security for its $30.0 million loan to Florida Coast
Holding. Dennis Mehiel currently owns all the outstanding common stock of Four
M. There is no person known to the Company to be the beneficial owner of more
than 10% of Stone's common stock. The following chart illustrates the ownership
of the Company following the Acquisition:
[CHART]
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<PAGE>
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to an indenture (the "Indenture")
between the Issuers and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee"). The terms of the New Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The New Notes are subject to
all such terms, and Holders of New Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the Indenture, Collateral Documents and
Registration Rights Agreement are available as set forth under "Available
Information." The definitions of certain terms used in the following summary are
set forth below under "--Certain Definitions."
The New Notes will be senior secured obligations of the Issuers, will rank
senior in right of payment to all subordinated indebtedness of the Issuers and
will rank PARI PASSU in right of payment with all senior borrowings. See
"--Security."
Finance Corp. is a wholly owned subsidiary of the Company that was
incorporated in Delaware for the purpose of serving as a co-issuer of the Notes.
The Company believes that Holders of the New Notes may be restricted in their
ability to purchase debt securities of limited liability companies, such as the
Company, unless such debt securities are jointly issued by a corporation.
Finance Corp. will not have any substantial operations or assets and will not
have any revenues. As a result, Holders of the New Notes should not expect
Finance Corp. to participate in servicing the interest and principal obligations
on the New Notes. See "--Certain Covenants--Restrictions on Activities of
Finance Corp."
SECURITY
The New Notes will be secured by a first mortgage on all real property and
improvements comprising the Mill and a first priority security interest in
substantially all of the equipment of the Mill and certain other assets of the
Company (but excluding, among other things, inventory and accounts receivable,
and the proceeds thereof). The Company entered into a Mortgage, Security
Agreement, Fixture Filing Statement and Assignment of Rents, Leases and
Leasehold Interests (the "Mortgage") providing for the grant by the Company to
the Trustee, as collateral agent (in such capacity, the "Collateral Agent") for
the ratable benefit of the Holders of the Notes, of a mortgage in the land and
the improvements thereon. The Company entered into a security agreement (the
"Security Agreement") providing for the grant by the Company to the Collateral
Agent for the ratable benefit of the Holders of the Notes of a first priority
security interest in substantially all of the equipment and certain other assets
of the Company. Such mortgage and security interests secure the payment and
performance when due of all of the Obligations of the Issuers under the
Indenture, the New Notes and the Collateral Documents. The Company has the right
to grant a security interest in accounts receivable and inventory of the Company
and any and all proceeds thereof to secure its obligations under any working
capital facility which is a Qualifying Facility (as such term is defined in the
Subordinated Credit Agreement).
In the event that any Collateral is sold in accordance with the provisions
of the Indenture and the Net Proceeds therefrom are applied in accordance with
the terms of the covenant entitled "--Repurchase at Option of Holders--Asset
Sales and Events of Loss," the Collateral Agent shall release the Liens in favor
of the Collateral Agent in the Collateral sold; PROVIDED that the Collateral
Agent shall have received from the Company an Officer's Certificate and an
Opinion of Counsel that such Net Proceeds have been or will be so applied. Upon
the full and final payment and performance of all Obligations of the Issuers
under the Indenture, the New Notes and the Collateral Documents, the Collateral
Documents shall terminate and the Collateral shall be released from the Lien of
the applicable Collateral Document. If an Event of Default (as defined herein)
has occurred and is continuing, the rights and remedies of the Trustee as
Collateral Agent for the Holders of the New Notes with respect to the Collateral
is as set forth in the Collateral Documents.
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<PAGE>
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $165.0
million and will mature on June 1, 2003. Interest on the New Notes will accrue
at the rate of 12 3/4% per annum and will be payable semi-annually in arrears on
June 1 and December 1 of each year, commencing on December 1, 1996, to Holders
of record on the immediately preceding May 15 and November 15. Interest on the
New Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium and interest, if any, on the New Notes will be payable at
the office or agency of the Issuers maintained for such purpose or, at the
option of the Issuers, payment of interest, if any, may be made by check mailed
to the Holders of the New Notes at their respective addresses set forth in the
register of Holders of New Notes; PROVIDED that all payments with respect to New
Notes to the Holders who have given wire transfer instructions to the Issuers
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof. Until otherwise designated by the
Issuers, the Issuers' office or agency will be the office of the Trustee
maintained for such purpose. The New Notes will be issued in denominations of
$1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Issuers' option prior to June 1,
2000. Thereafter, the New Notes will be subject to redemption at the option of
the Issuers, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2000................................................................... 106.375%
2001................................................................... 103.188%
2002 and thereafter.................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to June 1, 1999, the
Issuers may redeem up to one-third in aggregate principal amount of New Notes at
a redemption price of 112.75% of the principal amount thereof, in each case plus
accrued and unpaid interest, if any, thereon to the redemption date, with the
net proceeds of a public offering of Capital Stock (other than Disqualified
Stock) of the Company; PROVIDED that at least two-thirds in aggregate principal
amount of the New Notes originally issued under the Indenture remain outstanding
immediately after the occurrence of such redemption; and PROVIDED, further, that
such redemption shall occur within 60 days after the date of the closing of such
public offering of Capital Stock of the Company.
In addition, upon the occurrence of a Change of Control prior to June 1,
2000, the Issuers, at their option, may redeem all, but not less than all, of
the outstanding New Notes at a redemption price equal to 100% of the principal
amount thereof plus the applicable Make-Whole Premium (a "Change of Control
Redemption"). The Issuers shall give not less than 30 and not more than 60 days'
notice (a "Change of Control Purchase Notice") of such redemption within ten
days following a Change of Control. In the event that the Issuers give such
notice, the Issuers shall not be obligated to make a Change of Control Offer as
described under "--Repurchase at the Option of Holders--Change of Control."
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. If any New Note is to be redeemed in part only, the
notice of redemption that relates to such New Note shall state the portion of
the principal amount thereof to be redeemed. A new New Note in
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<PAGE>
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original New Note. On and
after the redemption date, interest ceases to accrue on New Notes or portions of
them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, unless the Issuers shall have
delivered a Change of Control Purchase Notice as described above under
"--Optional Redemption," each Holder of New Notes will have the right to require
the Issuers to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such Holder's New Notes pursuant to the offer described
below (the "Change of Control Offer") at an offer price in cash equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest, if any,
thereon to the date of purchase (the "Change of Control Payment"). Within ten
days following any Change of Control, the Issuers will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase New Notes pursuant to the procedures required
by the Indenture and described in such notice. The Issuers will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the New Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of New Notes or portions thereof being
purchased by the Issuers. The Paying Agent will promptly mail to each Holder of
New Notes so tendered the Change of Control Payment for such New Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by
book-entry) to each Holder a new New Note equal in principal amount to any
unpurchased portion of the New Notes surrendered, if any; PROVIDED that each
such new New Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Issuers will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the New Notes to require
that the Issuers repurchase or redeem the New Notes in the event of a takeover,
recapitalization or similar transaction. The Issuers' ability to pay cash to the
Holders of New Notes upon a repurchase may be limited by the Issuers' then
existing financial resources.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(ii) the loss, destruction, damage, condemnation, seizure, confiscation,
requisition of the use or taking by exercise of the power of eminent domain or
otherwise, of a substantial part of the assets comprising the Mill, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that (a) any "person" (as such term is
used in Section 13(d)(3) of the Exchange Act), other than Stone and its
Subsidiaries or Four M and its Subsidiaries, becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly, of more of the voting interests in the Company than
Stone and its
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<PAGE>
Subsidiaries or (b) Stone and its Subsidiaries are the "beneficial owners" (as
such term is defined above) of less than 35% of the voting interests in the
Company, (iv) the first day on which more than 50% of the members of the
Management Committee are not Continuing Members or (v) the first day on which
the Company fails to own 100% of the issued and outstanding Equity Interests of
Finance Corp. For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring voting
interests in the Company will be deemed to be a transfer of such portion of such
voting interests as corresponds to the portion of the equity of such entity that
has been so transferred.
"CONTINUING MEMBER" means, as of any date of determination, any member of
the Management Committee who (i) was a member of the Management Committee on the
date of the Indenture or (ii) was either nominated for election to the
Management Committee with the approval of at least 50% of the Continuing Members
who were members of the Management Committee at the time of such nomination or
election or was designated for election to the Management Committee by Stone or
by Four M.
ASSET SALES AND EVENTS OF LOSS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in an Asset Sale unless (a) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration in respect of and concurrently with such Asset Sale of an amount
that is at least equal to the fair market value of the relevant assets, as
determined in good faith by the Management Committee, and (b) 75% of such
consideration is in cash or Cash Equivalents. Within 270 days after the
consummation of such Asset Sale, the Company may apply, or may cause the
applicable Restricted Subsidiary to apply, all of the Net Proceeds therefrom,
individually or in combination, (i) to purchase or otherwise invest in
additional assets or (ii) to repay Indebtedness secured by such assets, PROVIDED
that the lien securing such Indebtedness was permitted to be incurred by the
Indenture. Any such Net Proceeds not so applied shall constitute "Excess
Proceeds" and shall be applied to make an Excess Proceeds Offer in accordance
with the terms described below.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in a Collateral Asset Sale unless (a)
such Collateral Asset Sale involves the Mill in its entirety, or involves
Collateral with a fair market value not exceeding $10.0 million on the date of
consummation of the sale thereof (a "Partial Collateral Asset Sale"); (b) the
Company receives consideration in respect of and concurrently with such
Collateral Asset Sale at least equal to the fair market value of such
Collateral; (c) with respect to each such Collateral Asset Sale, the Company
delivers an Officers' Certificate to the Trustee dated no more than 30 days
prior to the date of consummation of the relevant Collateral Asset Sale,
certifying that (i) such sale complies with clauses (a) and (b) above, (ii) the
fair market value of the Collateral being sold was determined in good faith by
the Management Committee (whose determination was based on the opinion of a
nationally recognized qualified independent appraiser prepared contemporaneously
with such Collateral Asset Sale and which opinion will be evidenced by an
opinion letter of the independent appraiser and attached to the Officers'
Certificate) as evidenced by copies of a resolution of the Management Committee
adopted in respect of and concurrently with such Collateral Asset Sale; (d) in
the case of a Partial Collateral Asset Sale, the opinion letter of such
independent appraiser pursuant to clause (c) above states that, excluding the
fair market value of the portion of the Collateral being sold, the aggregate
fair market value of the portion of such Collateral not being sold will not be
less than the aggregate fair market value of such portion of such Collateral
prior to the sale of, and prior to the release of the Lien of the Trustee,
pursuant to the applicable security document, on the portion of the Mill; (e)
100% of such consideration is in cash or Cash Equivalents; and (f) the Net
Proceeds therefrom shall be paid directly by the purchaser thereof to the
Trustee, pursuant to the applicable security document, as additional Collateral.
The Net Proceeds of all Asset Sales will promptly and without commingling be
deposited with the Trustee in the form received to be held by the Trustee as
Collateral in the Asset Sale Account until applied as permitted pursuant to this
paragraph. In the case of a Partial Collateral Asset Sale, the Company, within
270 days from the date of consummation of a Partial Collateral Asset Sale, may
apply all of the Net Proceeds therefrom to purchase or otherwise invest in
Replacement Collateral. Any such Net Proceeds not so applied shall constitute
"Excess Proceeds" and shall be applied to make an Excess Proceeds Offer in
accordance with the terms of the last paragraph of this covenant. In the case of
a Collateral Asset Sale other than a Partial
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Collateral Asset Sale, the Company shall comply with the covenant entitled
"Merger, Consolidation, or Sale of Assets" and all of the Net Proceeds therefrom
shall constitute "Excess Proceeds" and shall be applied to make an Excess
Proceeds Offer in accordance with the terms described below.
The Indenture provides that if the Company suffers an Event of Loss, (a) the
Net Proceeds therefrom shall be paid directly by the party providing such Net
Proceeds to the Trustee, pursuant to the applicable Collateral Document as
additional Collateral, (b) such Net Proceeds shall promptly and without
commingling be deposited with the Trustee in the form received to be held by the
Trustee as Collateral in the Event of Loss Account until applied as permitted
pursuant to this paragraph and (c) the Company shall take such actions, at its
sole expense, as may be required to ensure that the Trustee, pursuant to the
applicable Collateral Document, has from the date of such deposit a first
ranking Lien (subject to Permitted Liens) on such Net Proceeds pursuant to the
terms of the applicable Collateral Document. Within 270 days of receipt of the
Net Proceeds from any such Event of Loss, the Company may apply all of the Net
Proceeds received therefrom, together with all interest earned thereon,
individually or in combination, (i) to purchase or otherwise invest in
Replacement Collateral or (ii) to restore the relevant Collateral. In the event
that the Company elects to restore the relevant Collateral pursuant to the
foregoing clause (b)(ii), within six months of receipt of such Net Proceeds from
an Event of Loss, the Company shall (x) give the Trustee irrevocable written
notice of such election and (y) enter into a binding commitment to restore such
Collateral, a copy of which shall be supplied to the Trustee, and shall have 24
months from the date of such binding commitment to complete such restoration,
which shall be carried out with due diligence. Any such Net Proceeds not so
applied shall constitute "Excess Proceeds" and shall be applied to make an
Excess Proceeds Offer in accordance with the terms of the last paragraph of this
covenant.
Under the terms of the Indenture, in the event that the Company decides
pursuant to the third sentence of the second paragraph of this covenant or
clause (i) of the preceding paragraph to apply any portion of the Net Proceeds
from a Collateral Asset Sale or Event of Loss, respectively, to purchase or
otherwise invest in Replacement Collateral, (i) the Company shall deliver an
Officers' Certificate to the Trustee dated no more than 30 days prior to the
date of consummation of the relevant investment in Replacement Collateral,
certifying that the purchase price for the amount of the investment in
Replacement Collateral does not exceed the fair market value of such Replacement
Collateral as determined in good faith by the Management Committee (whose
determination shall be based on the opinion of a qualified independent appraiser
prepared contemporaneously with such consummation of the purchase of or
investment in the Replacement Collateral and which opinion will be evidenced by
an opinion letter of the independent appraiser and attached to the Officers'
Certificate), as evidenced by copies of a resolution of the Management Committee
adopted in respect of and concurrently with the investment in such Replacement
Collateral; and (ii) the Company shall take such actions, at its sole expense,
as shall be required to permit the Trustee, pursuant to the applicable
Collateral Document, to release such Net Proceeds from the Lien of the
applicable Collateral Document and to ensure that the Trustee has, from the date
of such purchase or investment, a first ranking Lien (subject to Permitted Liens
on such Collateral) on such Replacement Collateral under the applicable
Collateral Document.
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an offer to all Holders of New Notes (an
"Excess Proceeds Offer") to purchase the maximum principal amount of New Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of New Notes tendered pursuant to an Excess Proceeds Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of New Notes surrendered
by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the New Notes to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
The Trustee shall continue to have and the Company shall grant to the Trustee on
behalf of the Holders a first priority Lien on any properties or assets acquired
with the Net Proceeds of any such Asset Sale or Event of Loss on the terms set
forth in the Indenture and the Collateral Documents.
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CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of the Company's Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company or any direct or indirect parent
of the Company or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the New Notes, except at final maturity; (iv) make any payment of cash interest
on any subordinated debt permitting payment of interest with securities
subordinated to the New Notes; (v) make the payment of cash interest on, or
principal of, any Indebtedness incurred pursuant to clause (xiii) of the second
paragraph of the covenant entitled "--Incurrence of Indebtedness"; or (vi) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (vi) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under caption "--Incurrence of Indebtedness"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (2) - (5), but including Restricted Payments permitted by clauses
(1) and (6), of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of the
Company or of debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (iii) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment.
The foregoing provisions will not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph;
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(3) the defeasance, redemption or repurchase of subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness
or the substantially concurrent sale (other than to a Subsidiary of the Company)
of Equity Interests of the Company (other than Disqualified Stock); PROVIDED
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (4) so long as the Company is a
limited liability company and no Default or Event of Default shall have occurred
and be continuing, distributions in respect of members' income tax liability in
an amount not to exceed the Tax Amount (each such distribution, a "Tax
Distribution"); (5) the repayment of borrowings under the Liquidity Facility;
and (6) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Company or any Restricted Subsidiary of the
Company held by any member of the Company's (or any of its Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; PROVIDED that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $500,000 in any twelve-month period plus the aggregate cash proceeds
received by the Company during such twelve-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Restricted Subsidiaries; and no Default or Event of Default shall have occurred
and be continuing immediately after such transaction.
The Company may designate any Restricted Subsidiary, other than Finance
Corp., to be an Unrestricted Subsidiary if such designation would not cause a
Default. For purposes of making such determination, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid in
cash) in the Subsidiary so designated will be deemed to be Restricted Payments
at the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Management Committee set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock;
PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.5 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness in respect of the Liquidity Facility in an aggregate principal
amount at any time outstanding not to exceed $20.0 million;
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(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $10.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; PROVIDED that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by the Company or one of its Restricted Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by the
Company or one of it Restricted Subsidiaries; and PROVIDED FURTHER that the
principal amount (or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred pursuant to this
clause (v), does not exceed $10.0 million;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; PROVIDED, HOWEVER, that (1) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
New Notes and (2)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the Company
or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indenture to be outstanding;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; PROVIDED, HOWEVER, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(x) Indebtedness incurred by the Company to finance the construction of
environmental-related capital projects of the Company or its Restricted
Subsidiaries, PROVIDED that the aggregate amount of Indebtedness incurred
pursuant to this clause (x) does not exceed $30.0 million;
(xi) the incurrence by the Company of Indebtedness represented by the
Seller Note;
(xii) Indebtedness of the Company in addition to that described in
clauses (i) through (xi) above so long as the aggregate principal amount of
all such Indebtedness incurred under this clause (xii) shall not exceed
$20.0 million at any one time outstanding; and
(xiii) Indebtedness to Stone or Four M in an aggregate amount not to
exceed $25.0 million, PROVIDED that (a) such Indebtedness is subordinated in
right of payment to the New Notes at least to the extent of the Indebtedness
pursuant to the Subordinated Credit Facility as in effect on the date of the
Indenture, (b) such Indebtedness contains no events of default or remedies
other than those contained in the
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Subordinated Credit Facility as in effect on the date of the Indenture and
(c) such Indebtedness has a Weighted Average Life to Maturity greater than
the Weighted Average Life to Maturity of the New Notes.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Indenture and
the New Notes, (c) applicable law, (d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred and, in any event, the Consolidated Cash Flow of such Person is not
taken into account in determining whether such acquisition was permitted by the
terms of the Indenture, (e) by reason of customary non-assignment provisions in
leases entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (g) Permitted Refinancing
Indebtedness, PROVIDED that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the survivor or the
entity or the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation or limited
liability company organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) the entity or Person formed by
or surviving any such consolidation or merger (if other than the Company) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Company under the New Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
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Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness." For purposes of the
Indenture, a sale by the Company of the Mill, or
substantially all the assets of the Mill, shall be deemed to be a sale of
substantially all of the assets of the Company.
Notwithstanding the foregoing, the Company is permitted to reorganize as a
corporation in accordance with the procedures established in the Indenture,
PROVIDED that the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that such reorganization is not adverse to the Holders of New Notes (it being
recognized that such reorganization shall not be deemed materially adverse to
the Holders of New Notes solely because (i) of the accrual of deferred tax
liabilities resulting from such reorganization or (ii) the successor or
surviving corporation (A) is subject to income tax as a corporate entity or (B)
is considered to be an "includible corporation" of an affiliated group of
corporations within the meaning of Section 1504(a) of the Code or any similar
state or local law) and certain other conditions are satisfied.
ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any of its Wholly Owned Restricted Subsidiaries to, transfer, convey, sell,
lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or another
Wholly Owned Restricted Subsidiary), unless such transfer, conveyance, sale,
lease or other disposition (a) is of all the Capital Stock of such Wholly Owned
Restricted Subsidiary and (b) complies with the covenant described above under
the caption "--Repurchase at the Option of Holders--Asset Sales and Events of
Loss" and (ii) will not permit any Wholly Owned Restricted Subsidiary of the
Company to issue any of its Equity Interests (other than, if required by law,
shares of Capital Stock constituting directors' qualifying shares of a
Subsidiary that is organized outside of the United States) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Management Committee set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by the unanimous vote of the Management Committee
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an investment banking firm of national
standing with total assets in excess of $1.0 billion; PROVIDED that (1) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (2) transactions between
or among the Company and/or its Restricted Subsidiaries, (3) transactions
pursuant to the Output Purchase Agreement, the Stone Procurement Agreement, the
Liquidity Facility and the Indemnification Reimbursement Agreement, in each case
as in effect on the date of the Indenture, and the Waste Paper Supply Agreement
to be entered into subsequent to that date, (4) the lease by Box USA Group, Inc.
of the corrugator facility owned by the Company (the "Box USA Lease") and (5)
Restricted Payments and Permitted Investments that are permitted by the
provisions of the Indenture described above under the caption "--Certain
Covenants--Restricted Payments," in each case, shall not be deemed Affiliate
Transactions.
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SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Subsidiaries shall
acquire or create a Subsidiary after the date of the Indenture, then such newly
acquired or created Subsidiary shall execute a Subsidiary Guarantee, a
Contribution Agreement, a Security Pledge Agreement and a Subsidiary Security
Agreement and deliver an opinion of counsel in accordance with the terms of the
Indenture; PROVIDED, that this covenant shall not apply to all Subsidiaries that
have been properly designated as Unrestricted Subsidiaries in accordance with
the Indenture for so long as they continue to constitute Unrestricted
Subsidiaries.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in any
business other than the paper manufacturing business and such business
activities as are incidental or related thereto.
RESTRICTIONS ON ACTIVITIES OF FINANCE CORP.
In addition to the other restrictions set forth in the Indenture, the
Indenture provides that Finance Corp. may not hold any material assets, become
liable for any material obligations or engage in any significant business
activities; PROVIDED that Finance Corp. may be a co-obligor with respect to
Indebtedness if the Company is a primary obligor of such Indebtedness and the
net proceeds of such Indebtedness are retained by the Company or loaned to one
or more of the Company's Restricted Subsidiaries other than Finance Corp.
MAINTENANCE OF LIQUIDITY FACILITY
The Indenture provides that the Company shall maintain the Liquidity
Facility which permits borrowings by the Company of an aggregate of not less
than $20.0 million in existence at all times and shall enforce its rights under
the Liquidity Facility.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any New Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the New Notes unless such consideration is
offered to be paid or is paid to all Holders of the New Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any New Notes are outstanding, the Company will furnish to the Holders
of New Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its Restricted Subsidiaries and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, if required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability and
make such information available to securities analysts and prospective investors
upon request. In addition, the Company has agreed that, for so long as any New
Notes remain outstanding, it will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, if any,
the New Notes; (ii) default in payment when due of the principal of or premium,
if any, on the New Notes; (iii) failure by the Company to comply with the
provisions
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described under the captions "--Repurchase at the Option of Holders--Change of
Control," "--Repurchase at the Option of Holders--Asset Sales and Events of
Loss," "--Certain Covenants--Restricted Payments," "--Certain
Covenants--Maintenance of Liquidity Facility" or "--Certain
Covenants--Incurrence of Indebtedness"; (iv) failure by the Company for 30 days
after notice to comply with any of its other agreements in the Indenture or the
New Notes; (v) default by any party under the Output Purchase Agreement or the
Subordinated Credit Agreement, which default remains uncured for 30 days; (vi)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vii) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (viii) breach by the Company or any Subsidiary of any material
representation or warranty set forth in any Collateral Document, or default by
the Company or any Subsidiary in the performance of any covenant set forth in
any Collateral Document (after giving effect to any applicable grace or cure
periods), or repudiation by the Company or any Subsidiary of its obligations
under any Collateral Document, or any Collateral Document shall be held in any
judicial proceeding to be unenforceable or invalid or cease for any reason to be
in full force and effect; (ix) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and (x)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding New Notes may
declare all the New Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding New Notes will become due
and payable without further action or notice. Holders of the New Notes may not
enforce the Indenture or the New Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding New Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the New Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
June 1, 2000 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the New Notes prior to June 1, 2000, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF MANAGERS, OFFICERS, EMPLOYEES AND MEMBERS
No manager, officer, employee, incorporator or member of the Company or
Finance Corp., as such, shall have any liability for any obligations of the
Issuers under the New Notes, the Indenture or the Collateral Documents or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of New Notes by accepting a New Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the New Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, and premium and interest, if
any, on such New Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the New Notes concerning
issuing temporary New Notes, registration of New Notes, mutilated, destroyed,
lost or stolen New Notes and the maintenance of an office or agency for payment
and money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the New Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Certain
Covenants--Events of Default and Remedies" will no longer constitute an Event of
Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest, if any, on the
outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the New Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding New
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under
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any material agreement or instrument (other than the Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee
an opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of New Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture and
the New Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the New Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, New Notes), and any existing default
or compliance with any provision of the Indenture or the New Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding New Notes (including consents obtained in connection with a tender
offer or exchange offer for New Notes). In addition, the Collateral Documents,
the Subordinated Credit Agreement and the Output Purchase Agreement may not be
amended or supplemented without the consent of the Holders of at least a
majority in principal amount of the New Notes then outstanding and any existing
default or compliance with any provision of the Collateral Documents, the
Subordinated Credit Agreement and the Output Purchase Agreement may not be
waived without the consent of the Holders of a majority in principal amount of
the then outstanding New Notes.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
New Notes (other than provisions relating to the covenants described above under
the caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of
or change the time for payment of interest on any New Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the New Notes (except a rescission of acceleration of the New Notes
by the Holders of at least a majority in aggregate principal amount of the New
Notes and a waiver of the payment default that resulted from such acceleration),
(v) make any New Notes payable in money other than that stated in the New Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes, (vii) waive a
redemption payment with respect to any New Note (other than a payment required
by one of the covenants described above under the caption "--Repurchase at the
Option of Holders"), (viii) consent to a release of the security interest in the
Collateral or make any change in the provisions of the Indenture or the
Collateral Documents relating to the security interest of the Trustee in
Collateral or (ix) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture, the
New Notes, the Collateral Documents, the Subordinated Credit Agreement or the
Output Purchase Agreement to cure any ambiguity, defect or inconsistency,
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to provide for uncertificated New Notes in addition to or in place of
certificated New Notes, to provide for the assumption of the Company's
obligations to Holders of New Notes in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of New Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to provide for additional collateral to secure
the New Notes or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment from claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days and apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes to be resold as set forth herein will initially be issued in
the form of one Global Note (the "Global Note"). The Global Note will be
deposited on the closing date of the Exchange Offer with, or on behalf of, the
Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
New Notes that are issued as described below under the caption
"--Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Upon the transfer of Certificated
Securities, such Certificated Securities may, unless the Global Note has
previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Note representing the principal amount of New Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the principal amount of the Global Note and (ii) ownership of the New Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer New Notes evidenced by the
Global Note will be limited to such extent.
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So long as the Global Note Holder is the registered owner of any New Notes,
the Global Note Holder will be considered the sole Holder under the Indenture of
any New Notes evidenced by the Global Note. Beneficial owners of New Notes
evidenced by the Global Note will not be considered the owners or Holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records of the Depositary or for maintaining, supervising
or reviewing any records of the Depositary relating to the New Notes.
Payments in respect of the principal of, premium, if any, and interest, on
any New Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names New Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of New Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of New Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of New Notes in the form of Certificated Securities
under the Indenture, then, upon surrender by the Global Note Holder of its
Global Note, New Notes in such form will be issued to each person that the
Global Note Holder and the Depositary identify as being the beneficial owner of
the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of New
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global Note (including principal, premium, if any, and interest) be made
by wire transfer of immediately available funds to the accounts specified by the
Global Note Holder. With respect to Certificated Securities, the Company will
make all payments of principal, premium, if any, and interest, by wire transfer
of immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearing-house or next-day funds. In
contrast, the New Notes represented by the Global Note are expected to be
eligible to trade in the Depositary's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such New Notes will, therefore,
be required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into the Registration Rights
Agreement dated May 30, 1996. Pursuant to the Registration Rights Agreement, the
Company agreed to file with the Commission the
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Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the New Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the Holders of
Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for New Notes. If the Company does not meet its
obligations under the Registration Rights Agreement, it may be required to pay
Liquidated Damages to holders of Old Notes.
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. The Company agrees for a period of 270 days from the
effective date of this Prospectus to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any New Notes. The Registration Statement of which this
Prospectus is a part constitutes the registration statement for the Exchange
Offer which is the subject of the Registration Rights Agreement. Upon the
closing of the Exchange Offer, subject to certain limited exceptions, Holders of
untendered Old Notes will not retain any rights under the Registration Rights
Agreement.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10.0% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback),
other than sales of inventory in the ordinary course of business consistent with
past practices, the sale of the real estate and other assets subject to the Box
USA Lease and the sale of certain real estate to St. Joe pursuant to an option
related thereto and (ii) the issue or sale of Equity Interests in any of the
Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) a Collateral Asset Sale and (iii) a Restricted Payment that is
permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset
Sales.
"ASSET SALE ACCOUNT" means a cash collateral account in which the Net
Proceeds from Asset Sales shall be deposited pursuant to the Indenture.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
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"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Keefe Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Ratings Corporation and in each case maturing within six months after the date
of acquisition.
"CODE" means the Internal Revenue Code of 1986.
"COLLATERAL" means the Mill and all other property and assets that from time
to time secures the New Notes pursuant to the Indenture and the Collateral
Documents.
"COLLATERAL ASSET SALE" means any direct or indirect sale, conveyance,
lease, transfer or other disposition, including, without limitation, by means of
an amalgamation, merger, consolidation or similar transaction (each, a
"Disposition"), or a series of related Dispositions by the Company or any of its
Restricted Subsidiaries involving the Collateral, other than (a) the sale of
machinery, equipment, furniture, apparatus, tools or implements or other similar
property that may be defective or may have become worn out or obsolete or no
longer used or useful in the operation of the Mill, the aggregate fair market
value of which does not exceed $1.0 million in any year; (b) the sale or lease
of undeveloped land on the premises of the Mill with a value not in excess of
$1.0 million which will be dedicated to the construction and/or installation of
environmental control equipment required under applicable law; (c) the sale of
equipment that has been replaced by equipment of substantially equal value in an
alteration or improvement made at the Mill; and (d) a Disposition permitted
pursuant to the "Merger, Consolidation, or Sale of Assets" covenant. A
Collateral Asset Sale shall not include the requisition of title to or the
seizure, condemnation, forfeiture or casualty of any Collateral.
"COLLATERAL DOCUMENTS" means the Mortgage, the Security Agreement and any
other agreements, instruments, financing statements or other documents that
evidence or set forth the Lien of the Trustee in the Collateral, including,
without limitation, any Subsidiary Guarantee, Subsidiary Pledge Agreement and
Subsidiary Security Agreement executed pursuant to the terms of the Indenture.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with a
sale of assets not in the ordinary course of business (to the extent such losses
were deducted in computing such Consolidated Net Income), plus (ii) provision
for taxes based on income or profits or the Tax Amount of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes or Tax Amount was included in computing such Consolidated Net Income, plus
(iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a
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prior period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation and amortization was deducted in computing
such Consolidated Net Income, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation and amortization of,
a Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in same proportion) that
the Net Income of such Subsidiary was included in calculating the Consolidated
Net Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to the Company or one of its Restricted Subsidiaries.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred equity (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends or other
distributions unless such dividends or other distributions may be declared and
paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such preferred equity, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets of
a going concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Restricted Subsidiaries (except, in each case, Permitted Investments),
and (z) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in accordance with
GAAP.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the First Mortgage Notes mature.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EVENT OF LOSS" means (i) the loss or destruction of or damage to any
assets, other than inventory, of the Company or any of its Restricted
Subsidiaries, (ii) the condemnation, seizure, confiscation, requisition of the
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use or taking by exercise of the power of eminent domain or otherwise of any
assets of the Company or any of its Restricted Subsidiaries or (iii) any
consensual settlement in lieu of any event listed in clause (ii), in each case
whether in a single event or a series of related events, that results in Net
Proceeds from all sources in excess of $1.0 million.
"EVENT OF LOSS ACCOUNT" means a cash collateral account in which the Net
Proceeds from Events of Loss shall be deposited pursuant to the Indenture.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Liquidity Facility) in existence
on the date of the Indenture, until such amounts are repaid.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and the Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all
dividend payments or other distributions on any series of preferred equity of
such Person, other than dividend payments or distributions on preferred equity
of the Company paid solely in additional shares of such preferred equity, times
(b) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax rate
of such Person (or, in the case of a Person that is a partnership or limited
liability company, the Tax Rate), expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
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"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"LIQUIDITY FACILITY" means the Subordinated Credit Agreement and any
Qualifying Facilities (as such term is defined in the Subordinated Credit
Agreement).
"MAKE-WHOLE PREMIUM" with respect to a New Note means an amount equal to the
greater of (i) 106.375% of the outstanding principal amount of such New Note and
(ii) the excess of (A) the present value of the remaining interest, premium and
principal payments due on such New Note as if such Note was redeemed on June 1,
2000, computed using a discount rate equal to the Treasury Rate plus 50 basis
points, over (B) the outstanding principal amount of such New Note.
"MANAGEMENT COMMITTEE" means (i) for so long as the Company is a limited
liability company, the Management Oversight Committee of the Company and (ii)
otherwise the board of directors of the Company.
"MILL" means the real property described in the Mortgage, the linerboard
mill located thereon and all other property and assets related thereto, all as
described in the Mortgage and all property and assets constituting Replacement
Collateral.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes or Tax Distributions on
such gain (but not loss), realized in connection with (a) any sale of assets not
in the ordinary course of business (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition
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of any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes or Tax Distributions on such
extraordinary or nonrecurring gain (but not loss) and (iii) in the case of any
person that is a limited liability company or a partnership, the Tax Amount for
such period.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale or Event of Loss
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale or Event of
Loss), net of the direct costs relating to such Asset Sale or Event of Loss
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes or Tax Distributions paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale or Event of Loss and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the New Notes
being offered hereby) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; and (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company.
"PERMITTED LIENS" means (i) Liens securing the New Notes; (ii) Liens on
inventory and accounts receivable and proceeds thereof and certain related
assets securing the Liquidity Facility; (iii) Liens in favor of the Company;
(iv) Liens on property of a Person existing at the time such Person is merged
into or consolidated with the Company or any Restricted Subsidiary of the
Company; PROVIDED that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company; (v) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company; PROVIDED that such Liens were in existence
prior to the contemplation of such acquisition; (vi) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary course of
business; (vii) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "-- Certain Covenants -- Incurrence of Indebtedness" covering only the
assets acquired with such Indebtedness; (viii) Liens existing on the date of the
Indenture; (ix) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (x) Liens incurred in the
ordinary course of business of the Company or any Restricted Subsidiary of the
Company with respect to obligations that do
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not exceed $2.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Restricted Subsidiary; (xi) the Lien of the Box USA Lease; (xii) the Liens
of the Option Agreement and the Warehouse Agreement, in each case as such terms
are defined in the Mortgage; (xiii) exceptions to title set forth in Title
Policy No. A02-064331 issued by Commonwealth Land Title Insurance Company; and
(xiv) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt
of Unrestricted Subsidiaries.
"PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; PROVIDED
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Debt does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable fees and expenses
incurred in connection therewith); (ii) such Permitted Refinancing Debt has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the New Notes, such Permitted Refinancing Debt has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to, the
New Notes on terms at least as favorable to the Holders of New Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"REPLACEMENT COLLATERAL" means, at any relevant date in connection with a
Collateral Asset Sale or Event of Loss, assets used in the linerboard business
other than the Collateral, which on such date, (a) constitute similar assets to
Collateral disposed of or destroyed (and do not constitute Capital Stock of any
Person), (b) are acquired by the Company at a purchase price which does not
exceed the fair market value of such Replacement Collateral (as determined, in
the case of each of (a) and (b), in good faith by the Management Committee, on
the basis of the written opinion of a qualified independent appraiser or
financial advisor prepared contemporaneously with such purchase) and made
available to the Trustee, (c) are free and clear of all Liens other than
Permitted Liens, and (d) is subject to the Collateral Documents.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SELLER NOTE" means that certain Indebtedness issued by the Company pursuant
to the Asset Purchase Agreement in an aggregate principal amount not to exceed
$10.0 million.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"SUBORDINATED CREDIT AGREEMENT" means the Subordinated Credit Agreement,
dated the date of the Indenture, among the Company, Stone and Four M.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof)
and (ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
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"TAX AMOUNT" means, with respect to any Person for any period, the combined
federal, state and local taxes that would be paid by such Person if it were a
Delaware corporation filing separate tax returns with respect to its Taxable
Income for such Period; PROVIDED, HOWEVER, that in determining the Tax Amount,
the effect thereon of any net operating loss carryforwards or other
carryforwards or tax attributes, such as alternative minimum tax carryforwards,
that would have arisen if such Person were a Delaware corporation shall be taken
into account. Notwithstanding anything to the contrary, Tax Amount shall not
include taxes resulting from such Person's reorganization or change in the
status as a corporation.
"TAX DISTRIBUTION" means a distribution in respect of members' income tax
liability in an amount not to exceed the Tax Amount.
"TAX RATE" means the combined federal, state and local tax rate applicable
to a Delaware corporation filing separate tax returns with respect to its
Taxable Income.
"TAXABLE INCOME" means, with respect to any Person for any period, the
taxable income or loss of such Person (or, with respect to a Tax Distribution,
the taxable income or loss of the Company allocated to such Person) for such
period for federal income tax purposes; PROVIDED, HOWEVER, that all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss;
PROVIDED, FURTHER, HOWEVER, that (i) any basis adjustment made in connection
with an election under Section 754 of the Code shall be disregarded and (ii)
such taxable income shall be increased or such taxable loss shall be decreased
by the amount of any interest expense incurred by such Person that is not
treated as deductible for federal income tax purposes by a partner or member of
such Person.
"TREASURY RATE" means the yield to maturity at the time of the computation
of United States Treasury securities with a constant maturity (as compiled by
and published in the most recent Federal Reserve Statistical Release H.15(519)),
which has become publicly available at least two Business Days prior to the date
fixed for prepayment (or, if such Statistical Release is no longer published,
any publicly available source of similar market data) most nearly equal to the
then remaining average life of the series of New Notes for which a Make-Whole
Premium is being calculated; PROVIDED, HOWEVER, that if the average life of such
note is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the average life of such Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary, other than Finance
Corp., that is designated by the Company as an Unrestricted Subsidiary pursuant
to a resolution of the Management Committee, but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (c) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; (d) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries; (e) has
at least one director on its board of directors that is not a member of the
Management Committee or an executive officer of the Company or any of its
Restricted Subsidiaries and has at least one executive officer that is not a
member of the Management Committee or an executive officer of the Company or any
of its Restricted Subsidiaries; and (f) does not own any Collateral. Any such
designation by the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Management Committee giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would
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fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "Incurrence of Indebtedness," the Company shall be in default
of such covenant). The Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness," and (ii) no Default or Event of Default would be in existence
following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of certain material federal
income tax consequences expected to result to Holders of the Notes. This
discussion is based on laws, regulations, rulings and judicial decisions now in
effect, all of which are subject to change. Any such change could be retroactive
in effect.
This discussion does not cover all aspects of federal income taxation that
may be relevant to a particular Holder in light of such Holder's individual
investment circumstances or to Holders that may be subject to special tax
treatment (such as life insurance companies, financial institutions, tax-exempt
organizations (including qualified pension or profit sharing plans and foreign
taxpayers)), and no aspect of foreign, state or local taxation is addressed.
This discussion is limited to Holders who hold their Notes as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). EACH HOLDER IS URGED
TO CONSULT ITS OWN TAX ADVISOR FOR THE FEDERAL AND STATE INCOME AND OTHER TAX
CONSEQUENCES PECULIAR TO SUCH HOLDER ARISING FROM HOLDING OR DISPOSING OF THE
NOTES.
LEGAL OPINIONS
At the Closing, the Company received an opinion from Kramer, Levin, Naftalis
& Frankel, counsel to the Company, as to the material federal tax issues
described in the following two paragraphs. The opinion of such counsel was based
on currently applicable law, which is subject to change, on the facts and
circumstances in existence at the closing, and on the continuing accuracy of
certain representations to be made by the Company. An opinion of counsel is not
binding on the Internal Revenue Service (the "IRS") and no ruling will be
requested from the IRS on any issues described herein.
First, in the opinion of counsel, the Company should be treated as a
partnership and not a corporation for federal income tax purposes. The Company
will report as a partnership for federal income tax purposes.
Second, in the opinion of such counsel, the Notes should constitute debt and
not equity for federal income tax purposes. The Company intends to take that
position.
INTEREST
Holders will be required to report interest income for federal income tax
purposes for any interest earned on the Notes in accordance with their method of
tax accounting. Although not free from doubt, any Liquidated Damages paid with
respect to an Old Note as a result of the Issuers' failure to comply with their
obligations under the Registration Rights Agreement should generally be taxable
to a Holder as ordinary income in accordance with their method of tax
accounting.
SALE, REDEMPTION AND MATURITY OF THE NOTES
A Holder will recognize gain or loss, if any, on the sale, redemption or
maturity of a Note equal to the difference between the fair market value of all
consideration received (excluding amounts received that are attributable to
accrued and unpaid interest, which amounts must be included as ordinary interest
income) upon such sale, redemption or maturity of the Notes and such Holder's
adjusted tax basis in the Notes. Except to the extent of any previously
unrecognized accrued market discount, discussed below, such gain or loss will be
capital gain or loss.
Generally, a Holder who purchases Notes subsequent to original issuance at a
"market discount" (I.E., at a price below the stated redemption price at
maturity) must treat gain recognized on the disposition of such Notes as
ordinary income to the extent market discount accrued while the debt instrument
was held by such Holder, unless such Holder made an election to include such
market discount in income as it accrued. Such an election would apply to all
market discount obligations acquired on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
Holders who purchase Notes subsequent to original issuance should consult
their own tax advisors regarding the amount of any market discount accrued with
respect to Notes held by them.
71
<PAGE>
BACKUP WITHHOLDING
A Holder of Notes may be subject to backup withholding at the rate of 31%
with respect to interest paid on, or gross proceeds from, the sale of the Notes,
unless such Holder (a) is a corporation or comes within certain other exempt
categories or (b) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A Holder who does not
provide the Company with its correct taxpayer identification number may be
subject to penalties imposed by the IRS.
The Company will report to the Holders and the IRS the amount of any
"reportable payments" (including any interest paid) and any amount withheld with
respect to the Notes during the calendar year.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against the Holder's federal income tax liability, provided
that the required information is furnished to the IRS.
72
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuers believe that New Notes
issued pursuant to the Exchange Offer to an Eligible Holder in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such
Eligible Holder (other than (i) a broker-dealer who purchased the Old Notes
directly from the Issuers for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act, or (ii) a person
that is an affiliate of the Issuers within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the Eligible Holder is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution of the New Notes.
Each broker-dealer that holds Old Notes which were acquired for its own
account as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Issuers or an affiliate of the
Issuers), may exchange the Old Notes for New Notes in the Exchange Offer.
However, such broker-dealer may be deemed an "underwriter" within the meaning of
the Securities Act and, therefore, must deliver a prospectus in connection with
any resales of the New Notes received by such broker-dealer in the Exchange
Offer. This prospectus delivery requirement may be satisfied by delivery of this
Prospectus, as it may be amended or supplemented from time to time. The Issuers
have agreed that they will provide sufficient copies of the latest version of
the Prospectus to broker-dealers promptly upon request at any time during the
270 day period following the effective date of this Prospectus to facilitate
such resales.
The Issuers will not receive any proceeds from any sale of the New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer and Holder that
receives the New Notes pursuant to the Exchange Offer hereby agrees to notify
the Issuers prior to using the Prospectus in connection with the sale or
transfer of New Notes, and each broker-dealer and Holder agrees that upon
receipt of any notice from the Issuers of the existence of any fact or the
happening of any event that makes any statement of a material fact in the
Prospectus, or any amendment or supplement hereto, or any document incorporated
herein by reference untrue or requires the making of any additions or changes in
the Prospectus (the "Notice"), such broker-dealer or Holder will forthwith
discontinue the disposition of the New Notes until such broker-dealer or Holder
(i) receives copies of a supplemental prospectus or (ii) is advised in writing
by the Issuers that the use of the prospectus may be resumed and has received
copies of any additional or supplemental filings that are incorporated herein by
reference. Upon the Issuers' request and at its expense, each Holder will
deliver to the Issuers all copies, other than permanent file copies in such
Holder's possession, of the Prospectus covering such New Notes that was current
at the time of receipt of such Notice.
73
<PAGE>
LEGAL MATTERS
The legality of the New Notes being issued in connection with the Exchange
Offer will be passed upon for the Issuers by Kramer, Levin, Naftalis & Frankel,
New York, New York.
EXPERTS
The financial statements of St. Joe Forest Products Company--Linerboard Mill
Operations as of December 31, 1994 and 1995, and for each of the years in the
three-year period ended December 31, 1995, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP refers to a change in the method of accounting for income
taxes.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Statement of Financial Position as of December 31, 1994 and 1995........................................... F-3
Statement of Operations for the years ended December 31, 1993, 1994 and 1995............................... F-4
Statement of Cash Flows for the years ended December 31, 1993, 1994 and 1995............................... F-5
Statement of Changes in Equity for the years ended December 31, 1993, 1994 and 1995........................ F-6
Notes to Financial Statements.............................................................................. F-7
Unaudited Statement of Financial Position as of March 31, 1996............................................. F-11
Unaudited Statement of Operations for the three months ended March 31, 1995 and 1996....................... F-12
Unaudited Statement of Cash Flows for the three months ended March 31, 1995 and 1996....................... F-13
Notes to Unaudited Financial Statements.................................................................... F-14
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
St. Joe Forest Products Company:
We have audited the accompanying statements of financial position of St. Joe
Forest Products Company--Linerboard Mill Operations as of December 31, 1994 and
1995, and the related statements of operations, cash flows and changes in equity
for each of the years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of St. Joe Forest Products
Company--Linerboard Mill Operations as of December 31, 1994 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As disclosed in note 3(e) to the financial statements, St. Joe Forest
Products Company--Linerboard Mill Operations changed its method of accounting
for income taxes effective January 1, 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Jacksonville, Florida
February 12, 1996
F-2
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 13,561 --
Accounts receivable...................................................................... 12,292 9,249
Inventories, net......................................................................... 12,108 14,632
Other assets............................................................................. 831 1,143
---------- ---------
Total current assets................................................................... 38,792 25,024
Property, plant and equipment, net......................................................... 171,021 169,424
---------- ---------
Total assets........................................................................... $ 209,813 194,448
---------- ---------
---------- ---------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable......................................................................... $ 8,556 7,746
Accrued liabilities...................................................................... 796 1,354
Accrued reserves......................................................................... 1,424 2,056
---------- ---------
Total current liabilities.............................................................. 10,776 11,156
Accrued reserves........................................................................... 1,799 2,379
Deferred income taxes...................................................................... 34,020 33,553
---------- ---------
Total liabilities...................................................................... 46,595 47,088
---------- ---------
Equity in net assets....................................................................... 163,218 147,360
---------- ---------
Total liabilities and equity........................................................... $ 209,813 194,448
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
Net sales....................................................................... $ 153,005 192,886 239,165
Cost of sales................................................................... 167,247 183,800 180,788
Selling, general and administrative expenses.................................... 4,199 3,077 4,672
---------- --------- ---------
Operating profit (loss)..................................................... (18,441) 6,009 53,705
---------- --------- ---------
Other income:
Interest income............................................................... 97 383 962
Other, net.................................................................... 430 227 95
---------- --------- ---------
527 610 1,057
---------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle....................................... (17,914) 6,619 54,762
Provision for income taxes:
Current....................................................................... (8,518) (494) 20,995
Deferred...................................................................... 2,647 2,947 (701)
---------- --------- ---------
Total provision for income taxes............................................ (5,871) 2,453 20,294
---------- --------- ---------
Income (loss) before cumulative effect of change in
accounting principle........................................................... (12,043) 4,166 34,468
Cumulative effect of change in accounting principle
for income taxes............................................................... 5,003 -- --
---------- --------- ---------
Net income (loss)........................................................... $ (7,040) 4,166 34,468
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................... $ (7,040) 4,166 34,468
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Cumulative effect of change in accounting principle........................... (5,003) -- --
Depreciation.................................................................. 24,451 23,678 24,054
Increase (decrease) in deferred income taxes.................................. 2,647 2,947 (701)
Changes in operating assets and liabilities:
Accounts receivable......................................................... (1,913) (3,920) 3,043
Inventories, net............................................................ (2,543) 2,370 (2,524)
Other assets................................................................ (31) (4) (78)
Accounts payable............................................................ 338 426 (810)
Accrued liabilities......................................................... (212) 333 558
Accrued expenses and reserves............................................... 565 (153) 1,212
---------- --------- ---------
Cash provided by operating activities..................................... 11,259 29,843 59,222
---------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment...................................... (13,381) (8,321) (22,457)
Purchases of held to maturity investments....................................... -- (3,951) (8,850)
Proceeds from maturity of investments........................................... -- 3,951 8,850
---------- --------- ---------
Cash used in investing activities......................................... (13,381) (8,321) (22,457)
---------- --------- ---------
Cash flows from financing activities:
Change in intercompany accounts................................................. 3,276 (8,434) (50,326)
---------- --------- ---------
Cash (used in) provided by financing activities........................... 3,276 (8,434) (50,326)
---------- --------- ---------
Net (decrease) increase in cash and cash equivalents.............................. 1,154 13,088 (13,561)
Cash and cash equivalents (deficit) at beginning of period........................ (681) 473 13,561
---------- --------- ---------
Cash and cash equivalents at end of period........................................ $ 473 13,561 --
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
Common stock.................................................................... $ 10 10 10
---------- --------- ---------
---------- --------- ---------
Additional paid in capital...................................................... $ 75,014 75,014 75,014
---------- --------- ---------
---------- --------- ---------
Retained earnings:
Balance at beginning of year.................................................. $ 127,090 120,050 124,216
Net income (loss)............................................................. (7,040) 4,166 34,468
---------- --------- ---------
Balance at end of year........................................................ $ 120,050 124,216 158,684
---------- --------- ---------
---------- --------- ---------
Intercompany accounts:
Balance at beginning of year.................................................. $ (30,864) (27,588) (36,022)
Net change.................................................................... 3,276 (8,434) (50,326)
---------- --------- ---------
Balance at end of year........................................................ $ (27,588) (36,022) (86,348)
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
(1) NATURE OF OPERATIONS
St. Joe Forest Products Company (SJFP) is engaged in the manufacture of
mottled white and unbleached kraft linerboard. SJFP operates one production
facility which is located in Port St. Joe, Florida. Sales are primarily to
manufacturers of corrugated containers, both domestic and foreign.
(2) BASIS OF PRESENTATION
The accompanying financial statements include all of the relevant assets,
liabilities, revenues and expenses attributable to the linerboard mill operation
of SJFP. Certain of the assets and liabilities are under contract for sale as
defined in the asset purchase agreement between St. Joe Paper Company (SJPC),
SJFP, St. Joe Container Company (SJCC), Florida Coast Paper Company, L.L.C. and
Four M Corporation dated November 1, 1995. The financial statements do not
reflect SJFP's wholly-owned subsidiaries.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
include cash on hand, bank demand accounts, money market accounts, remarketed
certificates of participation and repurchase agreements having original
maturities of three months or less.
(C) INVENTORIES
Inventories are stated at the lower of cost or market. Costs for
manufactured paper products and associated raw materials are determined under
the last-in, first-out (LIFO) method. Costs for substantially all other
inventories are determined under the first in, first out (FIFO) or the average
cost method. A reserve for obsolescence is established for materials and
supplies having no activity in the previous seven years.
(D) PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using both straight-line and accelerated methods
over the useful lives of various assets.
(E) INCOME TAXES
SJFP's results of operations are included in the consolidated U.S. federal
and Florida income tax returns of SJPC. The tax provisions and deferred tax
liabilities presented have been determined as if SJFP was a stand-alone business
filing separate returns, except to the extent that an operating loss can be
utilized by SJPC, the benefit is allocated to SJFP. Current tax liabilities are
paid to or refunded by SJPC.
SJFP follows the asset and liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
F-7
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the period that includes the enactment date. Effective January 1, 1993, SJFP
adopted SFAS 109 and has reported the cumulative effect of that change in the
method of accounting for income taxes of $5,003 in the 1993 statement of
operations.
(4) INVENTORIES
Inventories as of December 31 consist of:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Manufactured paper products and associated raw materials........................... $ 2,157 3,886
Materials and supplies............................................................. 9,951 10,746
--------- ---------
$ 12,108 14,632
--------- ---------
--------- ---------
</TABLE>
The replacement cost of manufactured paper products and associated raw
material inventories was in excess of LIFO stated cost by approximately $2,750
as of December 31, 1995 ($2,662 in 1994). The reserve for obsolescence was
approximately $2,100 at December 31, 1994 and 1995.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 31 consists of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1994 1995 LIFE
---------- --------- ----------
<S> <C> <C> <C>
Land................................................................ $ 200 200 --
Land improvements................................................... 4,020 4,123 20
Buildings........................................................... 10,584 11,474 45
Machinery and equipment............................................. 345,965 366,225 12 - 30
Office equipment.................................................... 701 732 10
Autos and trucks.................................................... 744 861 3 - 6
Construction in progress............................................ 6,402 1,796 --
---------- ---------
368,616 385,411
Accumulated depreciation............................................ 197,595 215,987
---------- ---------
$ 171,021 169,424
---------- ---------
---------- ---------
</TABLE>
(6) INCOME TAXES
Total income tax expense (benefit) for the year ended December 31, 1993,
1994 and 1995, was attributable to income (loss) from continuing operations and
was ($5,871), $2,453 and $20,294, respectively.
Income tax expense (benefit) attributable to income (loss) from continuing
operations differed from the amount computed by applying the statutory federal
income tax rate to pre-tax income (loss) as a result of the following:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax at the statutory federal rate....................................... $ (6,270) 2,317 19,167
State income taxes (net of federal benefit)............................. (367) 136 1,127
Adjustment to deferred tax assets and liabilities for enacted changes in
tax laws and rates..................................................... 766 -- --
--------- --------- ---------
$ (5,871) 2,453 20,294
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-8
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at December 31,
1994 and 1995, are presented below:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment, principally due to differences in depreciation.... $ 35,448 35,197
Deferred tax assets:
Current:
Accrued reserves............................................................... 528 762
Noncurrent:
Accrued reserves............................................................... 1,428 1,644
--------- ---------
Total deferred tax assets.................................................... 1,956 2,406
--------- ---------
Net deferred tax liability......................................................... $ 33,492 32,791
--------- ---------
--------- ---------
</TABLE>
Based on the timing of reversal of future taxable amounts and SJFP's history
of reporting taxable income, SJFP believes that the deferred tax assets will be
realized and a valuation allowance is not considered necessary. The current
deferred tax asset of $528 and $762 is recorded in other assets as of December
31, 1994 and 1995, respectively.
(7) PENSION AND RETIREMENT PLANS
Substantially all of SJFP's employees, along with other SJPC and
subsidiaries eligible employees, participate in SJPC pension plans. During the
past three years, the assets of the SJPC pension plan have exceeded benefit
obligations under such plans, resulting in pension income under SFAS No. 87
"Employers' Accounting for Pensions." SJPC has an Employee Stock Ownership Plan
(ESOP) for the purpose of purchasing stock of SJPC for the benefit of qualified
employees. Contributions to the ESOP are limited to .5% of compensation of
employees covered under the ESOP. No assets of the SJPC pension plan or the ESOP
will be transferred as a result of the asset purchase agreement. No allocation
of benefit or expense from the pension plans or ESOP has been made to SJFP
during the years ended December 31, 1993, 1994 and 1995.
SJPC also has other defined contribution plans which, in conjunction with
the ESOP, cover substantially all its salaried employees. Contributions are at
the employees' discretion and are matched by SJPC up to certain limits. SJFP's
expense for these defined contribution plans was $132, $133, and $131 in 1993,
1994 and 1995, respectively. Pursuant to the asset purchase agreement, the
assets of the defined contribution plans attributable to transferred SJFP
employees may be paid out immediately to the employee, left in the plans or
rolled over into a qualified plan of the buyer, if such plan exists.
(8) RELATED PARTY TRANSACTIONS
Intercompany due to and due from balances between SJFP and SJPC and its
affiliates have been included in equity. The net intercompany due to SJFP was
$36,022 and $86,348 at December 31, 1994 and 1995, respectively. The
intercompany transactions described below may or may not be indicative of what
such transactions would have been had SJFP operated either as an unaffiliated
entity or in affiliation with another entity.
F-9
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
(8) RELATED PARTY TRANSACTIONS (CONTINUED)
An allocation of costs of overhead of SJPC is included in selling, general
and administrative expenses. SJPC provides services for SJFP in treasury, taxes,
benefits administration and legal support and other financial systems and
support. SJFP was billed approximately $960 annually for such services in 1993,
1994 and 1995.
Sales to SJCC, a wholly owned subsidiary of SJFP, amounted to approximately
$87,015, $97,691, and $126,410 representing approximately 251,000, 248,000 and
238,000 tons for the years ended December 31, 1993, 1994 and 1995, respectively.
Pricing for these transactions was based on the PULP & PAPER WEEK Price Watch:
Paper and Paperboard. In addition, SJFP purchases both linerboard and
corrugating medium for SJCC from outside suppliers. The price paid by SJFP for
this rollstock was negotiated with each supplier. SJCC was charged for the
rollstock on the same basis as purchases from SJFP.
Purchases from St. Joseph Land and Development Company, a wholly owned
subsidiary of SJFP, amounted to approximately $53,994, $54,321 and $55,225
representing approximately 2,038,000, 2,028,000 and 2,033,000 tons for the years
ended December 31, 1993, 1994 and 1995, respectively.
SJFP ships the majority of its product via Apalachicola Northern Railroad, a
subsidiary of SJPC. Amounts billed for freight amounted to approximately $4,409,
$4,489 and $4,310 for the years ended December 31, 1993, 1994 and 1995,
respectively.
(9) CONTINGENCIES
SJFP is involved in litigation on a number of matters and is subject to
certain claims which arise in the normal course of business, none of which, in
the opinion of management, is expected to have a material adverse effect on
SJFP's financial position or results of operations.
SJFP has retained certain self-insurance risks with respect to losses for
third party liability, property damage and group health insurance provided to
employees.
SJFP is subject to costs arising out of environmental laws and regulations,
which include obligations to remove or limit the effects on the environment of
the disposal or release of certain wastes or substances at various sites. It is
SJFP's policy to accrue and charge against earnings environmental cleanup costs
when it is probable that a liability has been incurred and an amount is
reasonably estimable. As assessments and cleanups proceed, these accruals are
reviewed and adjusted, if necessary, as additional information becomes
available.
SJFP is currently a party to, or involved in, legal proceedings involving
environmental matters such as alleged discharges into water or soil. It is not
possible to quantify future environmental costs because many issues relate to
actions by third parties or changes in environmental regulation. Environmental
liabilities are paid over an extended period and the timing of such payments
cannot be predicted with any confidence. Based on information presently
available, management believes that the ultimate disposition of currently known
matters will not have a material effect on the financial position, liquidity, or
results of operations of SJFP. Aggregate environmental related accruals were
approximately $1,000 as of December 31, 1994 and 1995.
F-10
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
UNAUDITED STATEMENT OF FINANCIAL POSITION
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Accounts receivable............................................................. $ 10,629
Inventories, net................................................................ 15,635
Other assets.................................................................... 1,071
---------
Total current assets........................................................ 27,335
Property, plant and equipment, net................................................ 165,669
---------
Total assets................................................................ $ 193,004
---------
---------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable................................................................ $ 3,328
Accrued liabilities............................................................. 1,605
Accrued reserves................................................................ 2,056
---------
Total current liabilities................................................... 6,989
---------
Accrued reserves.................................................................. 2,379
Deferred income taxes............................................................. 33,453
---------
Total liabilities........................................................... 42,821
---------
Equity in net assets.............................................................. 150,183
---------
Total liabilities and equity................................................ $ 193,004
---------
---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-11
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
UNAUDITED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales................................................................................. $ 62,375 49,759
Cost of sales............................................................................. 47,331 45,106
Selling, general and administrative expenses.............................................. 800 766
---------- ----------
Operating profit...................................................................... 14,244 3,887
Other income:
Interest income......................................................................... 355 --
Other, net.............................................................................. 33 122
---------- ----------
388 122
---------- ----------
Income before income taxes................................................................ 14,632 4,009
Provision for income taxes:
Current................................................................................. 5,360 1,586
Deferred................................................................................ 63 (100)
---------- ----------
Total provision for income taxes...................................................... 5,423 1,486
---------- ----------
Net income................................................................................ $ 9,209 2,523
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited financial statements.
F-12
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
UNAUDITED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 9,209 2,523
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation............................................................................. 5,920 6,241
Increase (decrease) in deferred income taxes............................................. 63 (100)
Changes in operating assets and liabilities:
Accounts receivable.................................................................... (308) (1,380)
Inventories, net....................................................................... (95) (1,003)
Other assets........................................................................... (430) 72
Accounts payable....................................................................... (3,316) (4,418)
Accrued liabilities.................................................................... 1,032 251
--------- ---------
Cash provided by operating activities................................................ 12,075 2,186
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment................................................. (3,140) (2,486)
--------- ---------
Cash used in investing activities.................................................... (3,140) (2,486)
--------- ---------
Cash flows from financing activities:
Change in intercompany accounts............................................................ 388 300
--------- ---------
Cash provided by financing activities................................................ 388 300
--------- ---------
Net increase in cash and cash equivalents.................................................... 9,323 --
Cash and cash equivalents at beginning of period............................................. 13,561 --
--------- ---------
Cash and cash equivalents at end of period................................................... $ 22,884 --
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-13
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY - LINERBOARD MILL OPERATIONS
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. In the opinion of St. Joe Forest Products Company (SJFP), the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of March 31, 1996 and the results of operations and cash flows
for the three month periods ended March 31, 1995 and 1996.
2. The accompanying financial statements include all of the relevant assets,
liabilities, revenues and expenses attributable to the linerboard mill
operation of SJFP. Certain of the assets and liabilities are under contract
for sale as defined in the asset purchase agreement between St. Joe Paper
Company (SJPC), SJFP, St. Joe Container Company (SJCC), Florida Coast Paper
Company, L.L.C. and Four M Corporation dated November 1, 1995. The financial
statements do not reflect SJFP's wholly-owned subsidiaries.
3. The results of operations for the three month periods ended March 31, 1995
and 1996 are not necessarily indicative of the results that may be expected
for the full year.
4. Inventories as of March 31, 1996 consist of:
<TABLE>
<S> <C>
Manufactured paper products and associated raw materials...................... $ 5,040
Materials and supplies........................................................ 10,595
-----------
$ 15,635
-----------
-----------
</TABLE>
5. Intercompany due to and due from balances between SJFP and SJPC and its
affiliates have been included in equity. The net intercompany due to SJFP
was $86,049 at March 31, 1996. The intercompany transactions described below
may or may not be indicative of what such transactions would have been had
SJFP operated either as an unaffiliated entity or in affiliation with
another entity.
An allocation of costs of overhead of SJPC is included in selling, general
and administrative expenses. SJPC provides services for SJFP in treasury,
taxes, benefits administration and legal support and other financial systems
and support. SJFP was billed approximately $240 for such services for the
three months ended March 31, 1995 and 1996.
Sales to SJCC, a wholly owned subsidiary of SJFP, amounted to approximately
$30,161 and $27,245 representing approximately 62,000 and 56,000 tons for
the three months ended March 31, 1995 and 1996, respectively. Pricing for
these transactions was based on the PULP & PAPER WEEK Price Watch: Paper and
Paperboard. In addition, SJFP purchases both linerboard and corrugating
medium for SJCC from outside suppliers. The price paid by SJFP for this
rollstock was negotiated with each supplier. SJCC was charged for the
rollstock on the same basis as purchases from SJFP.
Purchases from St. Joseph Land and Development Company, a wholly owned
subsidiary of SJFP, amounted to approximately $13,793 and $14,218
representing approximately 508,000 and 474,000 tons for the three months
ended March 31, 1995 and 1996, respectively.
SJFP ships the majority of its product via Apalachicola Northern Railroad, a
subsidiary of SJPC. Amounts billed for freight amounted to approximately
$1,189 and $941 for the three months ended March 31, 1995 and 1996,
respectively.
6. SJFP is involved in litigation on a number of matters and is subject to
certain claims which arise in the normal course of business, none of which,
in the opinion of management, is expected to have a material adverse effect
on SJFP's financial position or results of operations.
SJFP has retained certain self-insurance risks with respect to losses for
third party liability, property damage and group health insurance provided
to employees.
F-14
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY - LINERBOARD MILL OPERATIONS
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SJFP is subject to costs arising out of environmental laws and regulations,
which include obligations to remove or limit the effects on the environment
of the disposal or release of certain wastes or substances at various sites.
It is SJFP's policy to accrue and charge against earnings environmental
cleanup costs when it is probable that a liability has been incurred and an
amount is reasonably estimable. As assessments and cleanups proceed, these
accruals are reviewed and adjusted, if necessary, as additional information
becomes available.
SJFP is currently a party to, or involved in, legal proceedings involving
environmental matters such as alleged discharges into water or soil. It is
not possible to quantify future environmental costs because many issues
relate to actions by third parties or changes in environmental regulation.
Environmental liabilities are paid over an extended period and the timing of
such payments cannot be predicted with any confidence. Based on information
presently available, management believes that the ultimate disposition of
currently known matters will not have a material effect on the financial
position, liquidity, or results of operations of SJFP. Aggregate
environmental related accruals were approximately $1,000 as of March 31,
1996.
F-15
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... i
Prospectus Summary............................. 1
Risk Factors................................... 9
The Exchange Offer............................. 14
The Acquisition................................ 21
Capitalization................................. 23
Selected Historical Financial Data............. 24
Unaudited Pro Forma Financial Data............. 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 31
Business....................................... 35
Management..................................... 43
Security Ownership............................. 45
Description of New Notes....................... 46
Certain Federal Income Tax Considerations...... 71
Plan of Distribution........................... 73
Legal Matters.................................. 74
Experts........................................ 74
Index to Financial Statements.................. F-1
</TABLE>
FLORIDA COAST PAPER
COMPANY, L.L.C.
FLORIDA COAST PAPER
FINANCE CORP.
OFFER TO EXCHANGE ITS
12 3/4% SERIES B FIRST MORTGAGE NOTES DUE 2003 WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND ALL OF ITS OUTSTANDING 12 3/4% SERIES A FIRST
MORTGAGE NOTES DUE 2003
----------------
PROSPECTUS
----------------
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 18-109 of the Delaware Limited Liability Company Act provides that,
subject to such standards and restrictions, if any, as are set forth in its
operating agreement, a limited liability company has the power to indemnify a
member or manager or other person from and against any and all claims and
demands whatsoever. The Company's Operating Agreement provides that no Member,
Manager, officer, employee or agent of the Company (the "Indemnitee") shall have
any liability to the Company or to any Member for any loss suffered by the
Company which arises out of any action or inaction of the Indemnitee if the
Indemnitee acted in good faith and in a manner reasonably believed by the
Indemnitee to be in the best interest of the Company and if such course of
conduct did not constitute recklessness or deliberate misconduct of the
Indemnitee. The Indemnitee shall be indemnified to the fullest extent provided
by law by the Company against any and all losses, judgments, liabilities,
expenses and amounts paid in settlement of any claim sustained in connection
with any action or inaction on behalf of the Company, provided that the same was
not the result of gross negligence or deliberate misconduct on the part of the
Indemnitee.
Section 145 of the Delaware General Corporation Law ("DGCL") permits the
Company to, and the Certificate of Incorporation provides that the Company
shall, indemnify and hold harmless any director, officer or incorporator of the
Company and any person serving at the request of the Company as a director,
officer, incorporator, employee, partner, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including an
employee benefit plan) from and against any and all expenses (including counsel
fees and disbursements), judgments, fines (including excise taxes assessed on a
person with respect to an employee benefit plan), and amounts paid in settlement
that may be imposed upon or incurred by him or her in connection with, or as a
result of, any proceeding, whether civil, criminal, administrative or
investigative (whether or not by or in the right of the Company), in which he or
she may become involved, as a party or otherwise, by reason of the fact that he
or she is or was such a director, officer or incorporator of the Company or is
or was serving at the request of the Company as a director, officer,
incorporator, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan), whether or not he or she continues to be such at the time such
expenses and judgments, fines and amounts paid in settlement shall have been
imposed or incurred, to the fullest extent permitted by the laws of the State of
Delaware, as they may be amended from time to time. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of the Certificate of Incorporation. Such
right of indemnification shall continue as to a person who has ceased to be a
director, officer or incorporator and shall inure to the benefit of the heirs
and personal representatives of such a person. The indemnification provided by
the Certificate of Incorporation shall not be deemed exclusive of any other
rights which may be provided now or in the future under any provision currently
in effect or hereafter adopted of the Certificate of Incorporation, by any
agreement, by vote of stockholders, by resolution of directors, by provision of
law or otherwise.
Finance Corp.'s Certificate of Incorporation provides that a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived any improper personal benefit.
In addition, the corporation shall, to the fullest extent permitted by DGCL,
indemnify any and all directors and officers whom it shall have power to
indemnify from and against any and all of the expenses, liabilities or other
matters referred to in or covered by the DGCL, and the indemnification provided
for therein shall not be deemed exclusive of any other rights to which the
persons so indemnified may be entitled under any by-law, vote of stockholders or
disinterested directors, agreement or otherwise, both as to action
II-1
<PAGE>
in his official capacity and as to action in any other capacity as a result of
holding such office, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Finance Corp.'s By-laws, filed as Exhibit 3.8 to this Registration
Statement, also provide for indemnification of any director, officer, employee
or agent of the Company to the fullest extent permitted by the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Form of Asset Purchase Agreement, dated as of November 1, 1995, among Florida Coast Paper Company,
L.L.C. (the "Company"), St. Joe Forest Products Company, St. Joe Container Company, St. Joe Paper
Company and Four M Corporation ("Four M").**
3.1 Certificate of Incorporation of the Company.**
3.2 Certificate of Incorporation of Florida Coast Paper Finance Corp. ("Finance Corp.").**
3.7 By-laws of the Company.**
3.8 By-laws of Finance Corp.**
4.1 Indenture, dated as of May 30, 1996, among the Company, Finance Corp. and Norwest Bank Minnesota,
National Association (the "Trustee").**
4.2 Form of 12% Series A and Series B First Mortgage Notes, dated as of May 30, 1996**
(incorporated by reference to Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of May 30, 1996, among the Company, Finance Corp. and the
Initial Purchaser.**
5.1 Opinion of Kramer, Levin, Naftalis & Frankel ("Kramer, Levin").**
10.1 Output Purchase Agreement, dated as of May 30, 1996, among the Company, Four M and Stone Container
Corporation ("Stone").**
10.2 Mortgage Security Agreement, dated as of May 30, 1996, between the Company and the Trustee.**
10.3 Subordinated Credit Facility, dated as of May 30, 1996, among the Company, Four M and Stone.**
10.4 Indemnification Reimbursement Agreement, dated as of May 30, 1996, between the Company and Four M.**
10.5 Wood Fiber Procurement and Services Agreement, dated as of May 30, 1996, between the Company and
Stone.**
10.6 Indenture of Lease.**
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Kramer, Levin (to be contained in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (incorporated by reference in the signature pages).*
25.1 Form T-1 Statement of Eligibility and Qualification of Norwest Bank Minnesota, National Association, as
trustee.**
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Exchange Agent Agreement.**
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
Schedules have been omitted because of the absence of conditions under which
they are required or because the information required is set forth in the
financial statements or the notes thereof.
ITEM 22. UNDERTAKING.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful
II-3
<PAGE>
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Exchange Offer Registration
Statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Exchange Offer Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement or amendment to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of New York, New York, on
July 12, 1996.
FLORIDA COAST PAPER COMPANY, L.L.C.
By: /s/ HAROLD D. WRIGHT
-----------------------------------
Harold D. Wright
CHIEF EXECUTIVE OFFICER AND MEMBER,
BOARD OF MANAGERS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Harvey L. Friedman, Michael S. Nelson and
Shari Krouner his true and lawful attorney-in-fact and agent, each acting alone,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE(S) DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ HAROLD D. WRIGHT Chief Executive Officer and Member,
------------------------------------------- Board of Managers (Principal Executive July 12, 1996
Harold D. Wright Officer)
/s/ CLINTON G. AMES
------------------------------------------- President July 12, 1996
Clinton G. Ames
/s/ GREEN LONG
------------------------------------------- Chief Financial Officer and Treasurer July 12, 1996
Green Long (Principal Accounting Officer)
/s/ ROGER W. STONE
------------------------------------------- Member, Board of Managers July 12, 1996
Roger W. Stone
------------------------------------------- Member, Board of Managers July , 1996
Arnold F. Brookstone
/s/ DENNIS MEHIEL
------------------------------------------- Member, Board of Managers July 12, 1996
Dennis Mehiel
/s/ CHRIS MEHIEL
------------------------------------------- Member, Board of Managers July 12, 1996
Chris Mehiel
/s/ TIMOTHY D. MCMILLIN
------------------------------------------- Member, Board of Managers July 12, 1996
Timothy D. McMillin
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement or amendment to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of New York, New York, on
July 12, 1996.
FLORIDA COAST PAPER FINANCE CORP.
By: /s/ HAROLD D. WRIGHT
-----------------------------------
Harold D. Wright
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE
OFFICER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Harvey L. Friedman, Michael S. Nelson and
Shari Krouner his true and lawful attorney-in-fact and agent, each acting alone,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE(S) DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ HAROLD D. WRIGHT Chairman of the Board, Chief Executive
------------------------------------------- Officer and Director (Principal July 12, 1996
Harold D. Wright Executive Officer)
/s/ CLINTON G. AMES
------------------------------------------- President July 12, 1996
Clinton G. Ames
/s/ GREEN LONG
------------------------------------------- Chief Financial Officer and Treasurer July 12, 1996
Green Long (Principal Accounting Officer)
/s/ ROGER W. STONE
------------------------------------------- Director July 12, 1996
Roger W. Stone
------------------------------------------- Director July , 1996
Arnold F. Brookstone
/s/ DENNIS MEHIEL
------------------------------------------- Director July 12, 1996
Dennis Mehiel
/s/ CHRIS MEHIEL
------------------------------------------- Director July 12, 1996
Chris Mehiel
/s/ TIMOTHY D. MCMILLIN
------------------------------------------- Director July 12, 1996
Timothy D. McMillin
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
2.1 Form of Asset Purchase Agreement, dated as of November 1, 1995, among Florida Coast Paper
Company, L.L.C. (the "Company"), St. Joe Forest Products Company, St. Joe Container Company, St.
Joe Paper Company and Four M Corporation ("Four M").**...........................................
3.1 Certificate of Incorporation of the Company.**...................................................
3.2 Certificate of Incorporation of Florida Coast Paper Finance Corp. ("Finance Corp.").**...........
3.7 By-laws of the Company.**........................................................................
3.8 By-laws of Finance Corp.**.......................................................................
4.1 Indenture, dated as of May 30, 1996, among the Company, Finance Corp. and Norwest Bank Minnesota,
National Association (the "Trustee").**..........................................................
4.2 Form of 12% Series A and Series B First Mortgage Notes, dated as of May 30, 1996** (incorporated
by reference to Exhibit 4.1).....................................................................
4.3 Registration Rights Agreement, dated as of May 30, 1996, among the Company, Finance Corp. and the
Initial Purchaser.**.............................................................................
5.1 Opinion of Kramer, Levin, Naftalis & Frankel ("Kramer, Levin").**................................
10.1 Output Purchase Agreement, dated as of May 30, 1996, among the Company, Four M and Stone
Container Corporation ("Stone").**...............................................................
10.2 Mortgage Security Agreement, dated as of May 30, 1996, between the Company and the Trustee.**....
10.3 Subordinated Credit Facility, dated as of May 30, 1996, among the Company, Four M and Stone.**...
10.4 Indemnification Reimbursement Agreement, dated as of May 30, 1996, between the Company and Four
M.**.............................................................................................
10.5 Wood Fiber Procurement and Services Agreement, dated as of May 30, 1996, between the Company and
Stone.**.........................................................................................
10.6 Indenture of Lease.**............................................................................
23.1 Consent of KPMG Peat Marwick LLP.*...............................................................
23.2 Consent of Kramer, Levin (to be contained in the opinion filed as Exhibit 5.1)...................
24.1 Power of Attorney (incorporated by reference in the signature pages).*...........................
25.1 Form T-1 Statement of Eligibility and Qualification of Norwest Bank Minnesota, National
Association, as trustee.**.......................................................................
27.1 Financial Data Schedule.*........................................................................
99.1 Form of Letter of Transmittal.**.................................................................
99.2 Form of Notice of Guaranteed Delivery.**.........................................................
99.3 Form of Exchange Agent Agreement.**..............................................................
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
St. Joe Forest Products Company:
We consent to the inclusion of our report dated February 12, 1996, with
respect to the statements of financial position of St. Joe Forest Products
Company--Linerboard Mill Operations as of December 31, 1994 and 1995, and the
related statements of operations, cash flows and changes in equity for each of
the years in the three-year period ended December 31, 1995, which report appears
in the Form S-4 of Florida Coast Paper Company, L.L.C. dated July 12, 1996, and
to the reference to our firm under the heading "Experts" in the Form S-4 of
Florida Coast Paper Company, L.L.C. dated July 12, 1996. Our report refers to a
change in the method of accounting for income taxes.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jacksonville, Florida
July 10, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
FINANCIAL POSITION, STATEMENT OF OPERATIONS, STATEMENT OF CASH FLOWS, STATEMENT
OF CHANGES IN EQUITY, FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE-MONTHS
ENDED MARCH 31, 1996
</LEGEND>
<CIK> 0001018221
<NAME> FLORIDA COAST PAPER COMPANY, L.L.C., FLORIDA COAST PAPER FIN
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 9,249 10,629
<ALLOWANCES> 0 0
<INVENTORY> 14,632 15,635
<CURRENT-ASSETS> 25,024 27,335
<PP&E> 385,411 387,897
<DEPRECIATION> 215,987 222,228
<TOTAL-ASSETS> 194,448 193,004
<CURRENT-LIABILITIES> 11,156 6,989
<BONDS> 0 0
0 0
0 0
<COMMON> 10 10
<OTHER-SE> 147,350 150,173
<TOTAL-LIABILITY-AND-EQUITY> 194,448 193,004
<SALES> 239,165 49,759
<TOTAL-REVENUES> 239,165 49,759
<CGS> 180,788 45,106
<TOTAL-COSTS> 150,788 45,106
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 54,762 4,009
<INCOME-TAX> 20,294 1,486
<INCOME-CONTINUING> 34,468 2,523
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 34,468 2,523
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
